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A Syllabus for Economics I 



INTERPOLATED WITH 



EXPOSITORY, CRITICAL, AND INTERPRETATIVE 

MATTER 



BY 



RAYMOND VINCENT PHELAN, PH. D. 



TO BE USED WITH REVISED EDITION OF 

OUTLINES OF ECONOMICS 

BY RICHARD T. ELY, PH. D. LL.D. 

AND COLLABORATORS 



MINNEAPOLIS 
THE H. W. WILSON COMPANY 

1911 



Copyright 1911 
By Raymond V. Phelan 






'Ci.A2f)rw:)3 






^i. 



PREFATORY NOTE. 

This publication consists, in revised form, of some of the 
writer's lecture material for Economics I., combined with an 
analysis, interpolated with criticisms and additional matter, of 
the Text used in the course. 

The little book is sold to University of Minnesota students 
entirely without payment of royalty to the writer. 
August 10, 1911. Raymond V. Phelan. 



INSTRUCTIONS FOR COURSE 

Economics I Dr. Raymond Phelan 

Important: — General Instructions. 

Text book : Outlines of Economics, by Professor Richard 
T. Ely, Ph. D., LL. D., Revised and enlarged edition. 

1. The student is held strictly responsible for: (i) the text 
book; (2) all additional and critical matter in this Syllabus; 
(3) for the lectures and discussions given by the instruct- 
or ; (4) and for a minimum of 50 pp. a week (beginning 
with the second week of the semester) of collateral reading, 
to be selected from the citations at the ends of the text book 
chapters, from others noted in the Syllabus, or from still 
others recommended orally by the instructor or approved by 
him. 

2. It is suggested that the student let his collateral reading 
be upon the special topics that interest him most, upon those 
that give him special difficulty, and upon the points specially 
emphasized by the instructor in class or in the Syllabus. 

3. Reading Reports : 

Beginning with the second week of the semester (omit- 
ting Thanksgiving week of the first semester) the student 
will hand in at the beginning of the last class hour of each 
week, a written report on his week's collateral reading. Four- 
teen such reports are required for the semester's work. Such 
reports are to be on cards 4x6, and are to indicate the 
number of the report, the date, the name of the author or 
writer read, the name of the book or other publication, the 
subject read upon, and in brief suggestive phrases, the signifi- 
cant points of the matter read. (Use both sides of cards.) 
Reports are to be handed in promptly, unless delay is per- 
mitted by the instructor for good cause. When tardiness in 
handing in reports is unexcused, the student will be reported 
to the Student Work Committee. 



INSTRUCTIONS FOR COURSE. 

The student is distinctly to understand that reading 
done for other courses is not to be handed in for this course, 
also that he is expected to do his own reading and to do it 
in a conscientious manner. Cheating in this respect will be 
treated like any other form of cheating. 

Sample Reading Report. 

Name of Student — Date and number of report. 

Ely: Evolution of Industrial Society. 

Ch. 3. Econ. stages pp. 25-73 — 49 

Manner of getting a living intimately related to whole social 
life ; hunting stage, pastoral, handicraft, industrial. 

Ch. 4. Econ. classes pp. 74-86 — 13 



Total 62 
At first women the workers, etc. 

Two hostile camps in society, employer and employee. 
Question of equality of opportunity. 
Regulated associations to promote justice. 
4. The student is urged to become interested in the economic 
items, articles, or editorials appearing in current newspapers, 
reports, and magazines, and to bring up in class such points 
as either interest him or are not perfectly clear to him. 

It is urged also that the student observe and inquire con- 
cerning economic conditions around him ; for example sani- 
tary conditions, wages, hours, industrial fatigue, character 
of goods, character of services rendered, the way in which 
in general people treat one another in their business and 
socio-economic life, the general affect of conditions upon 
people, and of people upon conditions, public regulation of 
persons and of business. Remember always that in the street, 
the shop, the store, the office, the home, on the farm, you are 
in your laboratory, as a student of economics. 



CONTENTS 



Page. 

Instructions for Course i 

Foreword Necessity of the Historical Point of View i 

Section i. Definition of Economics 5 

Section 2. History of Economic Thought 7 

Section 3. Scope of Economics 12 

Section 3. Continued. (Ely, Ch. I) 14 

Section 4. Goal of Economic Progress... 16 

Section 5. Characteristics of Present Economic System 19 

Section 6. Economic Evolution 23 

Section 6. Continued (Ely, Chs. Ill and IV) 25 

Section 7. Stages of Manufacturing Evolution 28 

Section 8. Economic Development of the United States (Ely, 

Chs. V and VI ) 39 

Section 9. Elementary Concepts 44 

Section 9. Continued. (Ely, Ch. VII) 50 

Section 10. Consumption (Ely, Ch. VIII) 5'4 

Section 11. Production (Ely, Ch. IX) 58 

Section 12. Business Organization (Ely, Ch. X) 60 

Section 13. Value and Price (Ely, Chs. XI and XII) 64 

Section 14. Monopoly (Ely, Ch. XI 11) 07 

Section 15. Money (Ely, Ch. XIV) 70 

Section 16. Credit and Banking (EI}^ Ch. XV) 72 

Section 17. Other Problems in Money and Banking. ( Ely, Ch. 

XVI) 74 

Section 18. International Trade (Ely, Ch. XVII) 80 

Section 19. Protection and Free Trade. (Ely, Ch. XVIII) 82 

Section 2o'. Distribution. (Ely. Ch. XIX) 85 



Sect 
Sect 
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Section 35- 
Section 36. 

Section 2>7- 



ion 


21. 


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ion 


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.ion 


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tion 


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tion 


3-2. 


tion 


Z2,- 


tion 


34- 



CONTENTS— Continued 

Personal Distribution of Wealth. (Ely, Ch. XX).. 87 

Rent of Land or Ground Rent. (Ely. Ch. XXI).... 89 

Wages 92 

Continued. (Ely, Ch. XXII) 94 

Labor Problems 98 

Continued. (Ely, Ch. XXllI) gy 

Interest. (Ely, Ch. XXIV) 102 

Profits. (Ely, Ch. XXV ) 105 

Necessity of State Activity 107 

Transportation. (Ely, Ch. XXVII) 109 

Insurance. (Ely, Ch. XXVIII) in 

Activities of Municipalities. (^Ely. Ch. XXIX) 113 

Socialism. (Ely, Ch. XXX) 115 

Agricultural Problems. (Ely, Ch. XXXI) 119 

Public Expenditures. (Ely, Cli. XXXII) I24 

Public Revenues from Loans and Government Own- 
ership. (Ely, Ch. XXXIII) 126 

Public Revenues: Derivative. (Ely, Ch. XXXIV).. 129 

Public Revenues: Federal, State, and Local. (Ely, 

Ch. XXXV) 134 

Review: Definition, Scope, and Goal of Economics. 141 



SYLLABUS. 

Foreword. 

Necessity of the Historical Point of View. 

It is important first of all that the student of economics 
get the historical point of view, for economic life is ever 
changing, and likewise are the thoughts and theories 
that pertain to economic life. A few examples may 
be given to illustrate this fact. Aristotle's conception of the 
scope of political economy (a name now used by some in- 
terchangeably with economics) was quite different from the 
view of its scope held toward the end of the middle ages, 
just as later views are still different. Aristotle and Plato and 
later the early Christian Fathers declared it to be wrong for 
a lender of money to take any interest from the borrower. 
Their attitude toward interest in their times, however, was 
less unreasonable than such an attitude would be to-day. The 
process of modern state building through state regulated 
and state enforced development of a people's economic re- 
sources, the process known as Mercantilism (i6 to i8 cent- 
uries), had its justification in its time; likewise did the 
policy of Laissez-Faire (1755 on) have its measure of justifi- 
cation as a protest against some of the evils and the extremes 
of the Mercantile system. 

Frederick the Great, riding over his kingdom, might well 
shake his stick at any woman he saw outside of her house 
and command her to go in, for inside was work for her hands, 
and training for her mind, and exercise for her physical being, 
but a twentieth century Frederick the Great would be driving 
the woman into idleness, (into a vacuum as Wm. Flard puts 
it), because modern economic conditions have taken the 

* Matter contributed by the writer is marked (P) in order 
that the student may in no case be led to look in the Text 
for matter that is not there. 



2 NECESSITY OF HISTORICAL POINT OF VIEW 

woman's work in great part out of the home. If } ou under- 
stand economic evolution you will see little sense in the 
lament for the good old days when father supported the 
family, because there never were such good old days, for 
in the good old days, even in the rich patrician families of 
Rome, the wife and mother and the daughters were either 
industrial managers, or both managers and industrial workers, 
carrying on manufacturing in their homes. 

Conditions and attitudes change as evolution works its way. 
You probably see no objection to women in stores, yet Alice 
Stone Blackwell has pointed out that when a merchant in 
Saco Maine, first employed a saleswoman, the men of the 
town boycotted his store and the women remonstrated with 
him for putting a young woman in such a place of publicity. 
That married women should control their own property is 
unquestioned to-day under the enlightened law of Minnesota 
and other progressive places, but when Lucy Stone was try- 
ing to secure for married women control of their own prop- 
erty, many women asked with scorn, "Do you think that I 
would give myself where I would not give my ])roperty?" 
Today women would regard themselves as very much wrong- 
ed if they did not have control of their own property. Hardly 
any one to-day would say that a woman has not a right to 
her own wages, yet w^hen Susan B. Anthony, in 1854, cir- 
culated a petition asking that married women be allowed 
to collect their own wages "Many women slammed the door 
in her face with the remark that they had all the rights they 
wanted." When Elizabeth Blackwell began to study medicine, 
the women at her boarding house refused to speak to her, 
while women on the streets shunned her. Fortunately medi- 
cine is viewed with more respect in this age. No woman dis- 
graces herself by entering our Medical College to-day, nor 
does the prominent president of one of the best and most 
.influential women's clubs in this country think that she is 
doing anything startling when she suggests that women 
should be informed regarding cancer or any other dread 
disease. When Vassar College was opened, a woman, said 



NECESSITY OF HISTORICAL POINT OF VIEW 3 

to have been of more than ordinary intelligence, voiced a 
pretty general sentiment when she said, "The mere fact that 
it is called a college for w^omen is enough to condemn it. Of 
one thing we may be sure, no refined Christian mother will 
ever send her daughter to Vassar College." Yet many did 
and are still doing so. A noted American College president, 
now deceased, Alice Freeman Palmer, said that it was seri- 
ously l^elieved in the fifties that the classics would ruin a 
girl's morals, philosophy her religion, and mathematics her 
health. The Dean of Chichester said in a sermon when the 
entrance examinations to Oxford University were thrown 
open to women : "By the sex at large, certainly, the new 
curriculum is not asked for. I have ascertained by extended 
inquiry among gentlewomen that with true feminine in- 
stinct, they entirely distrust, or else look with downright 
disfavor upon so wild an innovation and interference with 
the best traditions of their sex." Contrast with the above, 
the words in 1910,. of President-emeritus Cyrus Northrop : 
"I am confident that women are to fill a much larger place in 
the world's work in the future than they have filled in the 
past ; that literature, the fine arts, designing, architecture, 
medicine and its related professions, and not a few kinds of 
business and of manufacturing, will in a few years number 
among those successfully prosecuting these pursuits not an 
inconsiderable number of educated, earnest, thinking women 
who will have learned their power to do many things which 
they once supposed only men could do ; and who, in a new 
sense of independence for themselves, will gladly lead the 
way to an emancipation of women, which shall save her 
from the sufifering and degradation which helpless poverty 
has so often brought to her in the past." 

(Dr. Cyrus Northrop — Addresses, Educational and Pa- 
triotic, 1910, p. 521. The quotation is from President 
Northrop's Commencement address, 1910.) 
Once workers were forbidden by law to strike and were 
punished for even combining with a view to securing higher 
wages. 



4 NECESSITY OF HISTORICAL POINT OF VIEW 

When the Sherman Anti-Trust Law was passed in 1890, 
many undoubtedly believed that trusts and combinations 
could and should be prohibited, but many now believe in 
the principle of the reasonable combination such as was de- 
clared for in the Standard Oil and American Tobacco cases 
by the federal Supreme Court in May 191 1. The idea of reg- 
ulating- trusts has displaced in many minds the idea of 
prohibiting trusts. 

New conditions, or greater experience, or better knowledge 
bring changes in economic opinion. 

The very small farm, which one writer has said might 
otherwise be called peasant farming, has been much lauded 
and advocated, but as farm machines have grown in number 
and efficiency it has begun to be recognized that a farm 
should be large enough to make financially possible the use of 
the most economical business Unit, and such a size usually 
exceeds the peasant farm. 

It was supposed that competition would secure reasonable 
railway service at reasonable rates and would prevent fraud, 
when American railways were first projected, but experience 
has taught the inevitability and even desirability of some 
railroad combinations. 

Many other examples might be given. Economic conditions 
change, and human understanding of them grows. Conse- 
quently the activities, the relationships and the phenomena 
that we study in Economics, and peoples' thoughts about 
them and theories concerning them have changed and are 
changing. We must in Economics have the historical point 
of view. (P). 



SECTION 1. 

(P-.) 
Definition of Economics. 

Economics is concerned with all the activities, relations 
and phenomena arising- from human effort to gain a living, 
a living not merely in the material sense, but in the broader 
sense that includes human well-being in all its aspects. Some 
economists even to-day define Economics as the Science of 
Wealth, but as Professor Gide (Principes D'Economie Poli- 
tique 1906, p. 3) says, this definition has the disadvantage of 
turning the attention from the true object of economic sci- 
ence, which is man and his wants, to things that are exterior 
to man and which are only the means of satisfying his wants. 
Some still make the mistake of defining Economics as a science 
of material things, thus obscuring the fact expressed by Pro- 
fessor Roscher (pioneer of the Historical School) that "The 
starting" point as well as the object point of our science is 
man." 

The older name given to economic science was Political 
Economy which name is derived from three Greek words: 
polis (ttoAis) city or state, 
oikis (otKos) house, 
nomos (t'0|Lios) rule or regulation. 
Hence among the Greeks, political economy meant the house- 
keeping of the city or state. To the housekeeping of individ- 
ual citizens, Aristotle and Xenephon gave the name domestic 
economy. 

Toward the close of the middle ages it was observed that 
the revenue of the State depends in some measure at least 
upon the prosperity of the people, and so political economy 
came to be regarded as the art of making a people wealthy 
and powerful through national development. 



6 DEFINITION OF ECONOMICS 

Adam Smith 1776: 

Political Economy has two objects: 

1. To enable the people to provide subsistence for 

themselves, and 

2. To supply the state with a sufficient revenue. 
When later the political economist began to emphasize 

social rather than political influences, the word political 
was dropped and economics was coined by way of analogy 
with physics and mathematics. The name political economy- 
is still used and in present day discussions it has the same 
meaning as economics, which concerns itself with the human 
being and the satisfaction of his wants. 

The German equivalent of Economics, Volkswirtschaft- 
lehre, means obviously the study of the housekeeping of 
the people, including their public, their domestic, and their 
industrial and other business activities and arrangements 
which are intended to supply the goods and services that sat- 
tisfv human want and desire. (P) 



SECTION 2. 

History of Economic Thought. 
ELY Ch. XXXVI. 

1. Three Greek writers of special interest to the student 

of economics : 

Plato ; Republic, Laws. 
Aristotle ; Politics. 
Xenephon; CEconomicus. 
Plato and Aristotle, attitude of toward : 

(a) slavery, 

(b) division of labor, 

(c) trade and commerce, 

(d) interest. 

Xenephon : preferred agriculture, because, he thought, 
it developes patriotic and religious feeling, pre- 
pares best for military life, and leaves time for 
intellectual and political activity. Xenephon, how- 
ever, was decidedly favorable to manufacturers and 
especially to trade. 
The Greek object of life; attitude toward material wealth. 
The word wealth comes from the Old English Welthe, which 
comes from Wele, Anglo-Saxon Wela, meaning weal or wel- 
fare. However it is to-day generally used to designate 
material things and forces, capable of contributing to human 
satisfaction. (P) 

2. The Romans, attitude of toward : 

(a) Commerce and trade, 

(b) interest, 

(c) agriculture, 

(d) the importance of Roman Civil Law. 

3. Christianity, attitude of toward: 

(a) labor, 

(b) position of mortals before God, 



8 HISTORY OF ECONOMIC THOUGHT 

(c) slavery, 

(d) money and trade, 

(e) the importance of the temporal life. (P) 

4, Canon law principles: 

(a) private property, 

(b) care of the poor, 

(c) justium pretium ; 

modern examples of idea of fair price, 
definition of fair price. 

5, Thomas Aquinas (1226-74), leading- later Medieval Can- 
onist, conceded that it was lawful to trade for a simple 
livelihood, or in order to supply a country with necessary 
commodities not produced in the country, or when the profits 
of trade were devoted to some honorable purpose, such as 
assisting the poor, but he held that except under exception- 
able circumstances, the seller was under obligations to re- 
veal any fault in his article, and that he was not to sell 
it for more than its worth. (P) 

Canonistic doctrines: (later years of 15th. century) 

1. just price, 

2. avarice defined as desire for wealth beyond 

necessities of one's station — and condemned, 

3. Status upheld — 

Men placed by God in ranks and orders, each 
with his own work to do, each with his own 
appropriate mode of, life. (P) 
(see Ashley — Econ. Hist, and Theory — Vol. 
II. last chapter). 
The doctrine of status and the too little emphasis of the 
church upon the temporal life undoubtedly impeded social 
progress. It is believed too that under-emphasis of the tem- 
poral life impeded sanitary reform and progress. (P) 

(see Sir John Simon — English Sanitary Institu- 
tions, — Introduction). 

6, What political change caused Mercantilism to supplant 
the Canonistic doctrines? 



HISTORY OF ECONOMIC THOUGHT 9 

Mercantilism might be well defined as State building 
through the development of economic recources. 
The most pressing need of the new national governments 
(1500 A. D.) was for more revenue, and revenue in money. 
A more fruitful source too of revenue was needed than the 
backward agriculture of the time. Manufactures and com- 
merce were therefore encouraged. High duties were placed 
on manufactured imports, bounties on similar exports. Im- 
portation of raw materials was encouraged, and colonies were 
sought as sources of raw material and as markets for manu- 
factured goods. 

It is true that some of the Mercantilists over-emphasized the 
idea of a favorable money balance of trade, but that was not 
an essential part of Mercantilism. (P) 

7. The Reaction of the Physiocrats. 
Physiocracy means the "government of nature." 

1755, Richard Cantillon published the physiocratic doctrine 
in his Essai sur la Nature du Commerce, written in 1725. 
1756, Quesnay published his Tableau Economique ; Gournay 
and Turgot. 

Physiocratic doctrines : 

(a) natural law, consequently laissez-faire, 

(b) net surplus from agriculture only, hence the 

single tax. 

8. Adam Smith; Wealth of Nations, 1776. 

Doctrines : 

(a) followed physiocrats in the main, but granted 

productivity of manufactures, 

(b) individual liberty of supreme value, 

(c) individual pursuing his own interests pro- 

motes welfare of all, 

(d) was not consistently a laissez-faire advocate; 

he sometimes advocated state education, he 
advocated state regulation of banks, and he 
praised the English Navigation Act. 

9. The Classical School: Bentham, Malthus, Ricardo, Mc- 
Cullogh, James Mill, John Stuart Mill. 



lo HISTORY OF ECONOMIC THOUGHT 

Their Principles, they assumed to be universal and perpet- 
tual. 

Malthusian doctrine and wages (see Ely p. 374). 

Ricardo on rent and wages. 

John Stuart Mill, a disciple of the old and of the new in 

English political economy. 
Classical School Assumptions: 

(a) the economic man, 

(b) perfectly free competition, 

(c) perfect mobility of labor and capital. 

The Classical School was laissez-faire, abstract, deductive, 
and dogmatic. 

10. The forces influencing John Stuart Mill to drop the 
laissez-faire idea : Socialism and the Sociologists. 

11. The Historical School (1843) 
Roscher, Hildebrand, Knies, VonStein. 
Principles and Tendencies : 

(a) denial of cosmopolitanism and perpetualism ; 

(b) economics can be studied only in connection 

with law and with history especially, 

(c) public regulation of private economics in the 

name of individual justice and social well- 
being, 

(d) setting up of an ethical ideal in economics, 

(e) is concrete, inductive and ethical. 

12. Bastiat (1801-50) : 

(a) laissez-faire, 

(b) rent a return for past investments, 

(c) capital is stored up labor, 

(d) past labor embodied in capital less valuable 

than present labor, because labor is increas- 
ing in efficiency. 

13. Henry C. Carey: home market idea. 
Daniel Raymond (1820) 

(a) wealth an opportunity to acquire material 

comforts of life by labor. 

(b) development of national powers, hence pro- 

tection. 



HISTORY OF ECONOMIC THOUGHT ii 

14. The Austrian School: Menger, Wieser, Sax, Bohm- 
Bawerk (1871). 

The classical school emphasized cost as the measure 
of value ; the Austrians utility. 

Marginal utility (least utility under given conditions 
of supply) theory advanced simultaneously by Jevons 
in England, Menger in Austria, and Walras in Switzer- 
land. English classicals emphasized the producer in 
the determination of value ; the Austrians, the con- 
sumer. Either is only half right. 



SECTION 3. 

Scope of Economics. 

(P) 

Does economics deal with both the actual and the ideal ; 
does it treat merely of what is, seeking to discover and in- 
terpret the laws and principles that govern the relations of 
human beings to the means of satisfying their wants, or does 
it go further by seeking to discover what economic condi- 
tions should be, and'in seeking, to suggest means of attaining 
ideal economic conditions? 

The Physiocrats, believing in the supremacy of natural 
law, and consequently in laissez-faire, saw no need of ideal 
goals, since they believed that free competition would work 
out economic justice and promote social well-being. 

Adam Smith is generally supposed to have so believed also, 
but there is recent evidence to the contrary. 

The English Classical School, believing in the efficiency of 
natural law, in laissez-faire, and the sufficiency of self-in- 
terest, held that it was the function of political economy to 
investigate economic facts and to discover truths about them, 
but not to prescribe rules of life. 

Early in the 19th. century, a group of American publicists 
protested against the English Classical School. Daniel Ray- 
mond's "Thoughts on Pol. Econ." 1820, was the first book to 
set forth an American Political Economy, which upheld the 
protective tariff as a means of promoting the welfare of a 
nation and advancing the happiness of its people. 

There were protests in England also. 

The German Historical School (1843) regards economics 
as having a high ethical task. It must not only discover, it 
must also weigh and estimate as to moral merit, it must de- 
termine such standards of production and of the division of 
the results of production (i. e. distribution in the technical 



SCOPE OF ECONOMICS 13 

sense) as will insure satisfaction of the demands of justice 
and morality. Professor Adolph Wagner of the University 
of Berlin thus analyzes the great general problem of eco- 
nomics : 

1. to describe economic phenomena, 

2. to give causal explanations, 

3. to determine a standard for measuring social merit, 

4. to set up an aim for economic progress, 

5. to examine ways and means of attaining this aim. 
In the opinion of the writer, economics is concerned with: 

1. the manner in which men and women produce the 

goods and services that satisfy human wants ; 

2. the effects upon the workers and upon society of 

such production as carried on ; for example large 
scale production developes strong industrial lead- 
ers, but reduces many to an army like routine ; 

3. how and with what effects the products of pro- 

duction are divided up in the form of rent, wages, 
interest, and profits. 

4. the effects upon society of its consumption of the 

things produced ; 

5. the merits and defects of the actual production, 

distribution, and consumption of goods and serv- 
ices ; and with the ways in which through edu- 
cation or public regulation such production, dis- 
tribution, and consumption may be so improved 
as to secure more social justice and greater human 
welfare. (P) 



SECTION 3. Continued. 

ELY Ch. I. 

1. Broadness of the field of economic study. 

Special attractions in economics for : 

(a) the historically inclined, 

(b) those inclined to practical administration or 

business, 

(c) the legal mind, 

(d) the mathematically inclined, 

(e) those of practical political inclination, 

(f) the philanthropic. 

2. Importance of man in economics (read carefully Dr. Ely's 
paragraph, pp. 5-6, on Economics treats of Man) 

Fallacies: man as a producer merely; man as the best 
productive machine ; exaltation of one class. 

3. Man in his relation to others and the importance of a 
growing interdependence. 

4. Economics treats of phenomena that are ever moving 
and changing. 

5. The economist as a counsellor who knows something of 
the past, the tendencies of the present, and the probabilities 
of the future. The value of his more complete analysis and 
his broader and usually disinterested outlook. 

6. The relation of man to his environment. 

Theory of natural selection ; theory of artificial selection. 
Are the laws of economics natural? 

7. Dependence of Economics upon : 

chemistry, 
psychology, 
physical science, 
mathematics. 

8. Dr. Ely speaks of Economics as a branch of Sociology. 



SCOPE OF ECONOMICS iS 

However there are three different views as to the scope of 
sociology: 

(i) it is the all-embracing science of society; 

(2) it has to do with the beginnings of society; 

(3) it is concerned with criminals and other defect- 

ives. 

9. Economics cannot be entirely divorced from ethics or 
from politics. 

10. Relation of economics to law and to politics. 

11. History: a knowledge of the past enables the student of 
economics to understand better the problems of the present, 
to detect tendencies, and to make forecasts. 



SECTION 4. 

(P) 
The Goal of Economic Progress. 

Broadly speaking there are distinguishable two views of 
society, which perhaps not with all-sufficing accuracy but 
certainly with much convenience can be called the aristocrat- 
ic view and the democratic view. Those who hold to the aris- 
tocratic view are not necessarily hard-hearted toward the 
less fortunate, nor necessarily oblivious of the misery and 
degradation of the world, nor unsympathetic with the millions 
to whom the door of full opportunity is never opened, but 
it seems to them necessary that the masses should toil hard 
for a narrow, meager, and often wretched Hving in order that 
the more fortunate — frequently referred to as the better classes 
— may live comfortably, and may through their investiga- 
tions, their discoveries, their art, their culture in general, 
and their skilful management of industry and business, pro- 
mote a greater civilization. To put the matter epigrammatic- 
ally, the southern slaveholder, for example, regarded the 
chattel slave as necessary to his plan of life and the pros- 
perity of his region ; the twentieth century aristocrat regards 
the industrial slave as necessary to his plan of living and to 
national progress. 

Those holding to the democratic view, on the other hand, 
not only sympathize with the victims of the misery and the 
degradation altogether too abundant and frequent in what 
has been called our modern feudalism, but they are con- 
vinced that no civilization ought to tolerate, to say nothing 
of grow by and rest upon conditions of ignorance, narrowness, 
sordidness, and even degradation and misery in far too many 
cases, for the masses of human kind. "One half of the world 
lives upon the other half" repeated an over-worked grocery 
employee to the writer. The upholder of economic democracy 



GOAL OF ECONOMIC PROGRESS 17 

believes in no such servitude or exploitation. The friend 
of democracy believes in the gospel of a fair, a good, and a 
decent living for every individual. In various other ways 
this idea of economic democracy may be expressed. It may 
be defined briefly as the philosophy of equal opportunity, or 
it may be expressed by saying that economic democracy aims 
at a richer and a more equitably distributed supply of the 
means of living, at a decreased cost in human life, human 
misery, and human bondage to slavish toil. According to 
its dictate, every boy and girl must have a fair chance to be 
born healthy and vigorous, to grow up into a strong, in- 
telligent, well-trained adult, to follow the work, or profession, 
or art that he or she is best fitted for by nature and training, 
and by reasonable toil, honestly and honorably pursued, be 
able to earn a decent and comfortable living. 

Economic democracy does not involve necessarily a level- 
ing of all to a dead level, nor is such leveling desirable. It 
insists on equality of opportunity rather than of rank and 
ability. It asks for a leveling up, to the end that none shall 
be wretched, ignorant, ignoble, or miserable. It may demand 
merely that all shall have at least a minimum of decent 
living and working conditions and of intelligence and of 
morality. Such a condition would certainly be promoted, if 
the American people would emphasize more than they usually 
do such immaterial advantages, as rank, or title, or superior 
opportunities for social service. 

There is however at least a three-fold difference of opinion 
as to how, economic democracy may be approached : 

(i) One class of progressives believes in trying to re- 
gain for competition what it has lost, by de- 
stroying the combination and the trust ; 

(2) Another class insists upon public or cooperative 

ownership and operation of all business and in- 
dustry ; 

(3) While a third class believes in relying upon edu- 

cation, upon associations such as labor unions, 
bankers' federations, farmers' organizations, and 



i8 GOAL OF ECONOMIC PROGRESS 

so forth, with proper regulations, and upon State 
or public regulation. 
The democratic goal of economic progress may be thought 
of as consisting of these three parts : 

(i) Emancipation of human beings from as much 
slavish toil as possible. 
This part of the goal can be approached through 
education and training which will promote im- 
proved productive processes and new mechan- 
ical devices, and will also make slavish laborers 
scarce. 

(2) Lessening of social costs and greater equity in 

their distribution, e. g. greater prevention of in- 
dustrial accidents, and better provisions for com- 
pensation of unavoidable accidents. Greater 
equity in the rewards of business and industry, 
e. g. equal pay for equal work, living wages for 
all, positions and promotions according to merit. 

(3) Development of a more widespread capacity for 

the production and the enjoyment of things, ar- 
tistic, aesthetic, and intellectual, and of a more 
widespread capacity for intelligent citizenship. 
Undoubtedly the democratic goal of economic progress can 
can be drawn closer to through : 

(i) More adequate and more efficient public regula- 
tion of private economics, in the name of public 
health, individual justice, and social welfare; 

(2) Professionalized, expert commissioners and other 

public officers ; 

(3) Constant, alert, democratic control of govern- 

ment. Not a few believe that this will involve 
changes in the constitutions of the U. S. and of 
the several states (see Smith, J. A. — The Spirit 
of Am. Govt.) Many also have confidence in the 
necessity of the initiative, the referendum and 
the recall to the end that representative govern- 
ment may be kept truly democratic. (P) 



SECTION 5. 

Characteristics of the Present Economic System. 
ELY Ch. II. 

1. Importance of environment in economics. 

Civilized nations live in environments that do not satisfy 
spontaneously the wants of their people. What is the signifi- 
cance of this? 

2. Environment and Survival. (P) 

The i8th. century idea that the State should confine itself 
to protecting its people from foreign foes and to maintaining 
peace within its borders persisted far into the 19th century, 
and though now thoroughly discredited still has its advocates. 
In the year 1910 for example it was declared twice in two 
conservation congresses in St. Paul that governments should 
cease spending large sums of money and should go back to 
what were referred to as their primal functions of maintain- 
ing domestic peace and protecting their people from foreign 
foes. A citizen in commenting on these pleas for simplified 
government said that the man making them argued for the 
survival of the fit, the principle according to which the plant 
or the animal, or the institution, or the principle well-adapted 
to its environment survives or tends to survive, while those 
less well-adapted perish. The inadequacy of the survival-of- 
the-fit idea in economics may be urged on the ground that 
nature obviously takes but little if any heed of the idea of 
a fair chance — what fair chance has the ant under your foot 
— and secondly, on the ground that our social environment 
is not natural, but artificial, at least for the most part. The 
fundamental insufficiency in economics of the survival of the 
fit principle is illustrated by the fact that in the absence of 
intelligence, or of sufficient legal regulation, the fraud and 
the charlatan may succeed where the honest man or woman 
may fail. As the editor of a local paper put it (Minneapolis 



20 CHARACTERISTICS OF PRESENT ECONOMIC SYSTEM 

Journal) many a deluded mortal who will readily pay $75 to 
a traveling- medical fakir, will hesitate to pay the struggling 
village physician 50 cents. Appreciation of the social unde- 
sirability of the survival of the fit idea was expressed by the 
stockholder in a certain drug store company, who said that 
it hurt her conscience to see her company sell certain patent 
medicines to a deluded public eager to buy them. Many 
other illustrations might be given. Many persons fail in life, 
or fail of their greatest achievement and success, because of 
unfortunate combinations of circumstances, traceable very 
often to the selfishness or the unscrupulousness of others. 
Many fail to achieve much in life because of poor physical 
constitutions resulting from the sins of their forebears or 
from the fact that their forebears had to work or live, or 
both, under conditions that any efficient sanitary engineer, 
intelligent physician, enlightened economist, or progressive, 
well-informed citizen would condemn as insanitary, un- 
hygienic, and socially pernicious. 

It has been estimated that $10,000,000 worth of dangerous 
and deleterious food is consumed in the U. S. annually. 
(Mass. Report on Cost of Living, 1910, p. 338). Measured 
by the simple standard of fitness, successful manufacturers 
of such goods were fit. Happily however, the U. S. Pure Food 
and Drugs Act of 1906 has done considerable to change the 
rules of winning success through the manufacture of food 
and drugs. Meat market, bakeshop, and milk laws are regu- 
lations of the same kind. Frankness, honesty, refinement, and 
sincerity may fail of sviccess in an environment that dis- 
counts such hall marks of real success. Cheap labor may drive 
out dear labor, but if it does so at the expense of good citizeji- 
ship and a sound healthy national life, such so-called cheap 
labor is really dear labor. Child labor may be profitable to 
the employer, but rarely under modern conditions to society. 
Whenever the principle of survival of the fit is appealed to, 
either in defense of or in condemnation of any person, institu- 
tion, or of any social or economic fact, it is fair to ask by what 
kind of an environment is this fitness or lack of fitness meas- 



CHARACTERISTICS OF PRESENT ECONOMIC SYSTEM 21 

ured, is it an environment reeking with ignorance, dishonesty, 
fraud, and injustice, or is it an environment rich in intelligence, 
morality, equity, and justice. For, the fit from the view point 
of an unfit environment may be unfit from the view point of a 
fit environment. (P) 

3. Private enterprise and initiative are our greatest eco- 
nomic dependence, but the State enters in various ways into 
our equation of economic life. 

The State : order, health, safety, roads, education, regula- 
tion, and even state production (e. g. Minneapolis Park Board 
sells refreshments, and the Minnestoa State Prison manu- 
factures and sells on the market binder twine and farm 
machinery. (P) 

How the farmer is affected by the State. 

4. Our intense and widespread division of labor necessitates: 

(a) exchange of goods and services ; 

(b) money, books, transporation ; 

(c) and credit agencies ; 

(d) and it creates the greatest interdependence. 

5. Class division according to occupation; also according to 
culture and education, but wealth unfortunately is the big 
test of social status. 

6. Foundation stones of private enterprise: 

(i) Difference between property and possession; 

(2) Property as the seat of social authority; 

(3) Inheritance a separate right ; not absolute ; 

(4) Need of contract ; 

(5) Vested Interests, definition of, examples of. 

7. What is freedom : the extent of one's freedom ; restric- 
tions upon economic freedom. 

One may be said to be free, when by reasonable labor to 
which he is by nature and training adapted, he is able with- 
out danger of health and life, or of morals to make a decent 
living. (P) 

8. Business competition: its two sides, buyer's and seller's. 
How the State attempts to temper competition. The Text, 

on p. 26, speaks too unqualifiedly, e. g. the State in America 



22 CHARACTERISTICS OF PRESENT ECONOMIC SYSTEM 

at least has by no means "insisted that no person shall sacri- 
fice the life and limb of another in the rush for wealth." Our 
thousands of unnecessary accidents are glowing testimony 
to the State's negative insistence. Nor does the State so far 
protect women and children and so forth. The Text speaks 
of what we are moving toward, as if we had already reached 
it. 

9. Cooperation modifies competition. 

10. Purpose of monopoly. 

11. The force of custom. 

12. The force of authority. 

13. Benevolence. 



SECTION 6. 



Economic Evolution. (P) 

The history of humanity presents an evolution of economic 
stages which have been repeated more or less whenever a 
people living in a more advanced stage have begun life a- 
new in a theretofore unsettled region, as e. g. the European 
going to America or to Australia, (see Loria, Foundations 
of Economic Society). The United States affords a record of 
economic and social evolution, modified however by the exist- 
ence of higher stages of economic development in other parts 
of the world, and fashioned by the peculiarities of America. 

Stages of econom.ic development may be discerned from 
different points of view. Such stages are not always clear 
cut, they always overlap more or less, and they do not always 
represent with strict accuracy the development of every com- 
munity, but nevertheless they are of much interest and im- 
portance. 

Stages from point of view of control over nature and its 
forces : 

1. hunting and fishing or direct appropriation, 

2. pastoral, 

3. agricultural, 

4. trades and commerce (or handicraft), 

5. industrial. 

Stages from the point of view of exchange or transfer of 
goods ; 

1. truck or barter economy, 

2. money economy, 

3. credit economy. 

Stages from point of view of organization of trade and in- 
dustry: Professor Schmoller, University of Berlin. 

1. the village, 

2. the town, 

3. the territory, 



24 ■ ECOiXOMIC EVOLUTION 

4. the state. 
Stages from the point of view of agrarian development: 

1. the three field system, 

2. convertible husbandry, (alternation of sheep rais- 

ing and crops), 

3. rotation of crops. 

Stages from the point of view of manufacture (referred to 
usually as Industrial Evolution) 

1. home or family economy, 

2. hired labor stage, 

3. gild system, 

4. domestic system. 
j 5. workshop stage, 

6. factory stage. 

Still other progressions may be worked out, for example, 
with reference to communication, the wireless telegraph being 
the latest stage ; with reference to transportation, aerial navi- 
gation giving some promise of being a final stage. Besides, 
within each stage in every series other stages can be dis- 
tinguished, e. g. evolution of the credit system, or of methods 
of railroad transportation. 

It is usually said by economists that the factors standing 
out most prominently at different times in world history are : 

1. in primitive times, nature; 

2. in ancient and middle ages, labor; 

3. in modern times, capital. 

However, in modern times another decidedly important 
factor is inventive, directive, and organizing labor. (P) 



SECTION 6, Continued. 



ELY Chs. Ill and IV. 



I. The relation of human control over nature to general 

culture. 

3. Characteristics of direct appropriation and of primitive 

man. 

3. Characteristics of Pastoral Stage and Pastoral Peoples. 

4. Characteristics of Agricultural Stage. The Question of 
Slavery. 

(a) Characteristics of the Manorial system : 
(i) self-sufficiency, 

(2) status of the people on a manor, 

(3) system of production, 

(4) work for the lord, 

(5) contrasts between manorial and modern 

systems, (add to references on Manorial 
system, Seager, Introduction to Eco- 
nomics pp. 2-4). 

5. Trade and Commerce stage. 
The Gilds. Extent of Trade. 

6. The Domestic System undermined the Gild System. 

7. The Mercantile System succeeded the decaying Town 
authority. 

Regulations of the Mercantile system. The monopoly evil. 

8. The Industrial Revolution (1770- 1840) 

(a) condition of England in 1760, 

(b) mechanical changes, 

(c) agricultural changes, 

(d) effects of the new factory system upon the 

worker. 

9. Adam Smith's idea of competition as a regulator of eco- 
nomic life. 

Acceptance of the laissez-faire idea. 



26 ECONOMIC EVOLUTION 

England, however, never reached a laissez-faire basis. 
Quality of goods. Protection of labor, 
(i) factory laws, 

(2) employer's liability, 

(3) labor union legislation.* 
Extension of Government enterprise. 

*The Text statement at bottom of p. 53 and top of p. 54 
may give a false impression. The Trades Disputes Act of 
190,6 makes a trade union immune from suit for tort only, 
it may still be sued for breach of contract. For text of the 
law see "Recent British Legislation Afifecting Working- 
men" being Part II, Report Massachusetts Bureau of Labor 
1907, pp. 219-21. 

10. Wise State regulation promotes true freedom, for by 
true freedom is meant the maximum of power for all members 
of society to attain their highest development without inter- 
ference with the similar right of others. Economic freedom 
might be defined as full opportunity to live a decent, up- 
right, honorable life, and to contribute one's maximum to 
the common good, not as in any degree an industrial, com- 
mercial, or professional slave, but as" an upright, self-respect- 
ing, useful citizen. (P) 

11. Kinds of necessary restriction: 

(i) Restriction must be put upon property to prevent 
its use in ways harmful to the owner or more 
particularly to others ; sanitary regulations for 
example. 

(2) Restrictions must be put on personal conduct 

for the same reason. Smoking on street cars for 
example should be prohibited in the interest of 
public health. 
Boys are not allowed to buy cigarettes. 

(3) Restrictions must be placed on the purchase and 

sale of labor to prevent harm to the worker and 
to society. 
Unventilated factories and stores, offices and schools, other 
exhausting conditions, child labor, starvation wages, man- 



ECONOMIC EVOLUTION 27 

ttfacttire in tenements or in other homes, immoral exploita- 
tion of girls and women as a result of starvation wages, 
all of these things and others should be prohibited. Much 
has been done in this direction, but much more remains to 
be done. (P) 



SECTION 7. 

Stages of Manufacturing Evolution, 

(P) 

The name industrial is usually confined to manufacturing, 
but there is a tendency to extend the name to agriculture 
and even to all business, (see Report to Legislature of Minne- 
sota Employes' Compensation Commission, 191 1, p. 212). The 
evolution traced here with the exception of the Hired Labor 
Stage follows the line of development in England, the first 
country to reach the Factory Stage. 

1. Home or Family economy: 

(a) aimed to produce utilities, whereas modern 

industry produces primarily for profits ; 

(b) produced not for a market but for direct family 

consumption. 

(c) modern survivals: woman who makes clothes 

for herself or her children ; woman who pre- 
pares food for her family. 

(d) modern home economy, however, is not self- 

sufficient ; it is afifected by business and polit- 
ical conditions outside of the home. 

2. Hired Labor Stage (not recognized by all economists 
but of importance). The artisan or craftsman traveled about, 
working in the house of his employer and on material fur- 
nished by his employer. This system of production was found 
especially among tailors and shoemakers. The hired artisan 
usually boarded with his employer until his job was finished. 
There are undoubtedly some survivals of this stage in parts 
of Europe where much of old-fashioned methods and customs 
survive. In America we have a kind of modern example of 
this stage in the dressmaker or seamstress who follows her 
trade from the house of one customer to that of another. 

3. The Gild System. 



STAGES OF MANUFACTURING EVOLUTION 29 

In the middle ages in Europe there appeared as a third 
stage the craft gild system. 

(a) This system manufactured for a market, but, 

and especially at first, for a very restricted 
market, and usually for orders taken in ad- 
vance. The master artisans, each of whom 
was an employer, an artisan, and a merchant 
all in one, were organized in craft gilds, one 
for each trade, except in very small places, 
where there was only one gild for all the 
crafts. These gilds controlled conditions of 
production, forbidding night work, penalizing 
for dishonest work, and sometimes fixing 
prices in accordance with what appeared to 
be fair. 

(b) The Gild System presented three classes of 

workers: the masters, who were members of 
the gild of their craft, and their employes, 
journeymen and apprentices. All worked to- 
gether and all in the beginning belonged to 
the same social class, the apprenticeship and 
journeymenship being only stages to crafts- 
manship or mastership. Production was car- 
ried on in the houses of the masters or in 
small shops adjacent to their homes. 

(c) The artisan in this stage as in its two immedi- 

ate successors, the domestic system and the 
workshop system, was not wholly dependent 
upon his trade. He got part of his living from 
his garden, his cow, his flock of fowl, and the 
household manufacture of his wife and family. 
In the master artisan, whose small business 
required no great capital nor great managing 
(entrepreneur) ability, were combined the 
worker, the employer and the business man. 
The craft gild was at the height of its power 
in the first half of the 14th. century. 



30 STAGES OF MANUFACTURING EVOLUTION 

(d) In India, Turkey, Persia and Turkestan, there 

are today craft gilds similar to those of 
medieval Europe. In the city of Bokhara 
there are 32 gilds. These gilds of Asia regu- 
late prices and wages, terms of employment, 
number of apprentices, rates of interest, cred- 
its, conditions of manufacture, purchase and 
sale, 
(Wm. E. Curtis, in Minneapolis Journal, Aug. 25, 1910.) 

(e) Likewise in China today there are strong pow- 

erful craft gilds, much of whose strength is 
due to the as yet limited scope and power 
of Chinese government. There are also strong 
merchant gilds in China but they seem to be 
of less importance than the Chinese craft 
gilds. The Chinese gilds interfere with every 
detail of business and demand "complete soli- 
darity of interest in their members." Unlike 
the old English gilds, the Chinese gilds unite 
master and journeymen in the same organiza- 
tion. 

(Morse, H. B., The Gilds of China, 1909, pp. 92. also Review 
of the same by Dr. John H. Gray, in The Economic Bulle- 
tin, December, 1910, pp. 403-4.) 

4. The Domestic System. 

(a) Gradually the market widened, and the amount 
of capital, and the degree of business ability 
required for the manufacture and marketing 
of commodities increased. At the same time 
the craft gild lost its democratic character, 
becoming aristocratic and exclusive. Many 
journeymen were shut out of all possibility 
of ever becoming masters. Many masters 
were forced out by extravagant procedure and 
ceremony in their gilds. Others finding the 
old restrictions burdensome left voluntarily. 
Furthermore, the gild showed an inability to 



STAGES OF MANUFACTURING EVOLUTION 31, 

measure up to or adapt itself to the new situ- 
ation resulting from the development of trade 
and the widening of markets. 

(b) Manufacture began to develop outside of the 

jurisdiction of the gilds. Middlemen or 
wholesalers appeared, taking up a position 
betv/een the producer and the market. The 
business element as a distinct and separate 
element came into the industrial equation. 

(c) Manufacture was still carried on in homes and 

in workshops connected with homes. Some- 
times the raw material was furnished by the 
artisan, in some cases was actually produced 
by him; sometimes it was furnished by the 
middleman. * 

(d) A modern survival, of the domestic system is 

the sweatshop, the tenement dwelling, where 
under insanitary conditions, human beings 
toil long wearisome hours for wretchedly 
miserable pay. A less objectionable survival 
is the practice of having clothing made in 
homes in the country or in parts of cities 
where squalor and disease are not so ram- 
pant as in most city tenements. 
The domestic industry in either case, however, 
is to be condemned, because it makes more dif- 
ficult public regulation and more easy, ex- 
ploitation of the worker, since he has little 
or no opportunity for union with his fellows. 
In most cases the survivals of the domestic sys- 
tem spell wretchedness and misery for the 
workers and some danger for the consumer, 
even though the theory (fomites) that fabrics 
can absorb and transmit disease germs seems 
to be discredited. 
The Workshop Economy: 

(a) Following the domestic stage came the stage 



32 STAGES OF MANUFACTURING EVOLUTION 

of organized manufacture or the workshop 
economy. In this stage the middleman be- 
came an industrial organizer who brought 
work people together in one place, thus mak- 
ing possible a greater division of labor, in- 
creased productivity, and a reduced cost of 
production. As a general thing, the worker 
had ceased to own either tools or material, 
and he no longer did his work at home. He 
had become an employe, and the middleman 
• an employer, 
(b) The worker in this stage had nothing but his 
labor to sell, but he had gained opportunity 
for association with his fellows. 
, The transformation in Europe to the work- 

shop economy began in the i6th. century. 
The gilds offered opposition as they did also 
to the domestic system, but without perma- 
nent efifect. In France the state aided the 
transformation by grants of special privileges. 
6. Machine Industry or the Factory System. 

(a) The factory system had a beginning with the 

application of water power to manufacturing, 
but its significant development began with 
the application of steam to industry and to 
transportation. 

(b) Four bases of distinction between hand and 

factory production: 
(i) use of power, 

(2) use of machinery. 

(3) production for a general market, 

(4) production under a system of division 

of labor. 
The Twelfth Census distinction was standard- 
ization, e. g. a shoe factory as contrasted with 
a custom made shoe shop. 

(c) Some consequences of factory production: 



STAGES OF MANUFACTURING EVOLUTION 33 

(i) a greater grouping of still larger num- 
bers of workers; 

(2) increased employment of women and 

children outside of the home ; wom- 
en, however, were the first manu- 
facturers and with children had al- 
ways worked as such. Futhermore, 
there had been brutal treatment of 
children in the domestic and work- 
shop stages. 

(3) increased dependence of workers on 

a single industry or even occupa- 
tion ; 

(4) increase of unemployment; 

(5) increased slaughter through industrial 

accidents, and increased ravages of 
occupational diseases. 

(d) The Factory system is capitalistic in two senses : 

(i) it employs large quantities of capital 

goods. 
(2) it employs capital-less hired labor. 

(e) Conditions essential to capitalistic production: 

(i) capital accumulation; 

(2) a proletariat or labor class dependent 

upon employment; 

(3) technical advancement; 

(4) large, accessible markets; 

(5) a successful capitalistic spirit; 

(6) a class with marked business fore- 

sight and power of organization 
and direction ; 

(7) an efficient banking organization; 

(8) a well-organized system of transpor- 

tation ; 

(9) efficient government promotes capital- 

istic production. 



34 STAGES OF MANUFACTURING EVOLUTION 

(f) Some advantages of capitalistic production: 

(i) greater productiveness; 

(2) calls forth and develops managing and 

organizing abilities of a high order; 

(3) can afford to experiment ; 

(4) can bring to small capital the earn- 

ings of large capital through its 
corporate form ; 

(5) works economy of labor through divi- 

sion of labor and improved tools 
and machinery; 

(6) effects economy of space. 

e. g. The Dayton Company advertised 
an increase in business in a given 
period of 7 times, of floor space in 
the same period of 4 times. 

(7) effects economy in use of natural 

agents, as steam for example. 

(8) effects economy of capital because a 
large capital can be turned over more 

rapidly than a small one. 

(9) can afford more comforts for employes 

or for patrons, or both. 

(g) Some disadvantages of large scale capitalistic 

production : 

(i) reduces many workers to an army like 
routine, denies to many adequate 
expression in and development 
through their work ; 

(2) accidents are frequent, occupational 

is disease persistent, (including in- 
dustrial fatigue) ; 

(3) involves too much involuntary idle- 

ness ; 

(4) promotes a tendency to the extremes 

of great wealth and of grinding 
poverty; 



STAGES OF MANUFACTURING EVOLUTION 35 

(5) makes modern problems of child and 

woman labor ; 

(6) affords greater opportunity for tyran- 

ny, against employe, small investor, 
consumer. 
(h) Remedies. 

(i) for the lack of opportunity, affecting 
many, to find in their work self-ex- 
pression and development: shorter 
hours, athletic and other pastimes 
outside of working hours, greater 
disposition on the part of bosses 
and managers to take advantage of 
suggestions from their subordinates, 
encouragement of such suggestions, 
and education of the worker in sub- 
sidiary hand trades that do afford 
some measure of self-expression ; 
(2) for the industrial accident, the occupa- 
tional disease, and industrial fa- 
tigue: compulsory schemes of in- 
surance, as in Germany notably, 
that put a money premium upon 
good care of the worker by the 
employer; also efficient public regu- 
lation of such matters. 
Two plans of compensation for indus- 
trial accidents: 
(a) Employers' Liability; Frequently 
referred to as the common law 
remedy. This is the remedy in 
the United States, except that 
Montana and Maryland have 
the better compensation plan 
for miners only, however. And 
by laws of 191 1, California, 
Kansas, New Hampshire, New 



36 STAGES OF MANUFACTURING EVOLUTION 

Jersey, Ohio, Wisconsin and 
Washington have optional 
compensation plans. In New 
York there is an optional 
law of 1910. The Kansas 
and New Hampshire laws 
cover only employments speci- 
fied as dangerous. In Washing- 
ton, the plan is compulsory for 
"extra hazardous" employ- 
ments. The Minnesota Employ- 
es' Compensation Commission 
made a good report, 191 1, but 
no legislation was effected. 
The liability plan involves suit, 
also fault in the employer be- 
fore recovery is possible ; it is 
uncertain for the injured work- 
er, and does not compensate for 
accidents that appear to be the 
fault of no one ; in the United 
States only about 9% of the 
estimated 500,000 yearly indus- 
trial accidents are compensated 
for; it also frequently operates 
fraudulently against the em- 
ployer; and it is extremely 
costly in proportion to its bene- 
fits, 
(b) Worker's Compensation ; This is 
the remedy throughout Europe, 
the Australasian States, in the 
Transvaal, and in both Alberta 
and Quebec, Canada. Some plan 
of insurance is usually involved 
in this system, sometimes 
compulsory as in Germany, 



STAGES OF MANUFACTURING EVOLUTION 37 

less frequently voluntary as in 
England. Compensation is cer- 
tain and is paid for practically 
all industrial accidents without 
any necessity of tedious and 
costly court proceedings. 

(3) for involuntary idleness : better organi- 

zation of business, including a pos- 
sible dove-tailing of seasonal trades, 
better organization of the labor 
market through either national bu- 
reaus of labor, or well coordinated 
cooperation between state and 
municipal bureaus. Europe is ahead 
^ of us in this respect also ; 

(4) for the tendency to billionaires and 

beggars to put it epigrammatically : 
promotion of the ideal of equal op- 
portunity, through public absorp- 
tion of unearned increments, includ- 
ing conservation for the public, of 
all rich natural resources; through 
honest and intelligent labor unions; 
through teaching those in control 
of property and business their obli- 
gations to society; by better train- 
ing for the masses; by government 
interference and regulation of va- 
rious kinds ; by teaching Americans 
to esteem rank of occupation and 
of achievement, especially when of a 
social service kind, and to recognize 
such rank above mere money power ; 

(5) for the bad conditions of women and 

child labor : abolition of child labor ; 
hygienic working conditions; ade- 
quate wages and political power for 



38 STAGES OF MANUFACTURING EVOLUTION 

women ; teaching of the girl and 
woman to regard herself as a sepa- 
rate individual, not as an appendage 
of the other sex, to the end that in 
industry, and business, and profes- 
sional life there may be equal 
wages, and equal rank regardless of 
sex, and in the home and the com- 
munity there may be stronger and 
more helpful women, and conse- 
quently a better race. 
(6) against tyranny in business and indus- 
try: education and full publicity of 
corporation affairs to protect the 
small investor; public regulation to 
minimize the wrongs of the con- 
sumer; labor unions and public 
regulation to save the employe from 
tyranny, also extension of the social 
secretary plan. 
The modern present day stage of industrial development, it 
is apparent, has great advantages and not a few serious dis- 
advantages, some of which have been lessened to some extent. 
Society has before it the tremendously important problem of 
increasing the advantages and minimizing as much as possible 
the many serious disadvantages. (P) 



SECTION 8. 

Economic Development of the United States. 
ELY Chs. V and VI. 

1. Stages of economic evolution on the successive American 

Frontiers. (See Professor F. J. Turner: The Signifi- 
cance of the Frontier in American History, in 5th. Year 
Book of the National Herbart Society, also in report 
Am. Hist. Assoc. 1893, pp. 197-227, and in Bullock's 
Selected Readings in Economics, 23-59). 

2. Effects of different Contemporaneous Stages of Economic 

Evolution on American Politics : 

Shay's Rebellion ; 

The frontier and the constitution (exception may be 
taken to the Text's broad statement concerning op- 
position to the constitution). 

The Tariff; 

Slavery ; 

Greenbacks and free silver. 

3. Influence of American development upon American char- 

acter. 

4. The problem of race suicide : 

(a) Society dying at the top, 

(b) Sterilization of upper classes gives room for 

progress upward, 

(c) Social vs. Personal Heredity. 

The evil in race propogation lies in too fast an increase 
among the less fortunate, the less vigorous, the less moral, or 
the less refined and intelligent. The real race suicide results, 
(i) from poor moral, physical, or mental inheritance following 
from vicious habits in the parents or parent, or from poor eco- 
nomic conditions that have influenced the parents, or from 
both ; (2) from birth into poor, narrow, unhealthful, and re- 
stricted conditions of living and working, (3) from the pres- 



40 ECONOMIC DEVELOPMENT OF THE UNITED STATES 

sure of a rising standard of living and of increased cost of liv- 
ing upon young people who would make excellfent parents if 
they had less slender resources. 

Among other things, the public authority should seek to 
prevent birth of children by criminal, insane, imbecile, dis- 
eased, or otherwise defective parents. Indiana, especially, 
and Connecticut and Michigan have taken the lead in this 
important matter. Besides, the state and public opinion 
should advance with vigor the principle of the single standard 
of morality for men and women. This standard should be 
impressed upon the people by educational authorities, and 
it should be emphasized in our courts by an impartial adminis- 
tration of the law in sex cases (see short article by Helen 
Keller, in Ladies' Home Journal, Jan., 1909, p. 2). Further- 
more the ban of public disapproval should be put upon inco- 
herent clamor about race suicide, especially as the very people 
least in danger of personal extinction through failure of chil- 
dren are likely to be the ones most influenced by crude de- 
mands for a higher birthrate. Even the words of those who 
have pointed out a danger of fewer numbers in the front ranks 
of society have not infrequently been misunderstood as de- 
manding, in the name of social welfare, more babies all along 
the line. It is safe to say that the best authority to-day recog- 
nizes the truth, that a few strong children who have a fair 
chance in the world and prospects of longer, happier and more 
useful lives are to be preferred to such an abundance of chil- 
dren as makes slaves of their mothers, leads to much infant 
disease and mortality as a result of deficient care, and means 
slight economic opportunity for the members of families too 
large for their resources. (P) 
5. Rural movement to the city ; 
Remedies ; 

education in agriculture, 

centralized education in the country, 

development of community life in the country, 

better roads, 

more trolley transportation. 



ECONOMIC DEVELOPMENT OF THE UNITED STATES 41 

modernizing of farm houses, 
better credit agencies for the farmer. 
The rising cost of living may operate more or less as a 
remedy by checking the rural exodus. 

6. The Negro Problem. 

7. Immigration : 

(a) early attitude toward, 

(b) changed character of, 

(c) evils of immigration, 

(d) exaggeration of evils. 

(i) American power of assimilation. 

(The text is probably wrong in its statement on p. 65 
that at the close of the i8th. century, probably half of our 
population was of other than Anglo-Saxon blood. For 
the census of 1790 indicates that 83.5% of the population 
was of English birth. Besides, no one questions our 
ability to assimilate the west European immigrant.) 
Ely 66. 

The Japanese laborer is now excluded from this coun- 
try with the concurrence and cooperation of the Japanese 
Government. (P) 

8. The National Wealth of the United States : 

(a) Importance of the public domain, 

(b) Free land and its influence, 

(c) Has the frontier passed away? 

9. Mercantilism in America: 

(a) Examples of" restriction in the colonies, 

(b) English colonial policy and its affect upon the 

colonies, 

10. The Industrial Revolution in America: 

(a) Effect of the Revolutionary War, 

(b) Encouragement to manufacturing, 

(c) Effect of Napoleonic Wars and the War of 1812, 

(d) White slaves of the 30's and 40's, 

(e) Difference between the Industrial Revolution 

in America and in England; 
(i) In manufactures. 



42 ECONOMIC DEVELOPMENT OF THE UNITED STATES 

(2) In agriculture. 

11. (a) Changes in manufacture as the United States has 

developed industrially. 

(b) Has incorporation democratized industry? 

(c) Change in the relation between employer and 

employe. 

(d) Competition and consolidation in business. 

(e) Integration of industry. 

12. Transportation: 

(a) Success of competition in railway transporta- 

tion. 

(b) Three transportation stages in United States. 

(c) Railway development; 

1830-40, 
1840,-70, 
1870-90, 

Competition and discrimination ; 

Pools, and traffic agreements ; 

Public Regulation. 
1890-1911. 

13. The Labor Movement: 

(a) before 1825, 

(b) 1825-37, 

(c) the National Union 1850, 

(d) the Knights of Labor 1869. 

fe) the American Federation of Labor. 

14. Periods of the Labor Movement: 

(a) germinal 1789-1825, 

(b) revolutionary 1825-50, 

(c) nationalization 1850-65, 

(d) federation 1865-93, 

(e) collective bargaining 1893-1911. 

15. The closed shop principle. 

16. Unions and Anti-Trust Law. 

May 191 1, the United States Supreme Court, in 
Standard Oil and American Tobacco cases decided 
that the Sherman Anti-Trust Act of 1890 forbids only 



ECONOMIC DEVELOPMENT OF THE UNITED STATES 43 

unreasonable combinations. Justice Harlan protested 
against this amendment by judicial interpretation. (P) 

17. Employers' Associations. 

18. Extent of Organized Labor: 

The American Federation of Labor claims a mem- 
bership of 2,000,000; the British Labor Office credits 
the Federation with about 1,600,000, and says that 
there are about 900,000 other union workers in the 

United States. The Massachusetts Cost, of Living- 
Commission estimates about 1,000,000 union workers 
outside the Federation. Estimating the total workers 

at 35,000,000, from 7 to 9% of American labor is 

unionized. (P) 

19. State Regulation of Industry. 

(a) Alfect on our Constitutions and law, of the 
philosophy of individualism and laissez-faire, 
dominant i'n 1787. 

(b) Examples in early American History of violation 

of the mistaken theory of laissez-faire. 

(c) State regulation of monopoly as contrasted with 

state regulation of competition. 



SECTION 9. 

Elementary Concepts. 
(P) 

Meaning of Production. 

Production consists in the creation of utility, while 
utility is capacity for satisfying a want or a desire. 
Consequently any activity that results in a creation of 
utility is productive, and may be referred to as an 
economic activity. However, in many an economic 
treatise of the laissez-faire period, the student finds 
an attempt to draw a distinction, without real warrant, 
between productive and unproductive labor. 

The Physiocrats believed that workers in the ex- 
tractive industries, farming, mining, and fisheries, were" 
alone productive. Adam Smith also had a superior 
appreciation of the productiveness of such industries, 
because in them he thought nature worked along with 
man. However, he recognized the productivity of 
labor spent in manufacturing, since such labor resulted 
in a vendible commodity, whereas the labor of a serv- 
ant, for example, did not. While recognizing that 
their services had value, he put into the unproductive 
class, because their services "produce nothing for 
which an equal quantity of service can afterwards 
be procured," the king, and all public officers, preach- 
ers, physicians, lawyers, men of letters, actors, singers, 
musicians of all kinds, and dancers. The fallacy of 
this is easily seen. For example, it is very clear that 
the very existence of the property used in manufacture 
depends upon the officers of the law and upon lawyers. 
Likewise, a laborer's efficiency may be increased by 
reason of the relaxation and recuperation afiforded him 
by sitting through a theatrical performance. Even on 



ELEMENTARY CONCEPTS 45 

the basis of Adam Smith's assumption then that labor 
to be productive must result in a vendible commodity, 
must produce something- for which an equal quantity 
of service can afterward be procured, his c'onclusion 
as to unproductive labor is incorrect. 

McCullog-h, an early 19th. century economist, saw 
clearly this fallacy when he pointed out that the pro- 
ducer produces not matter but utility. "To produce a 
fire, it is just as necessary that the coals be carried 
from the cellar to the grate as that they should be 
carried from the bottom of the mine to the surface 
of the earth. . . . The end of all human exertion 
is the same— that is, to increase the sum of neces- 
saries, comforts and enjoyments." 

. Man doth not live by bread alone, therefore utility 
embodied in the material things of commerce is not 
the only utility, and Economics is not a mere bread 
and butter science. ■ The farmer by giving intelligent 
direction to certain forces of nature makes the world 
richer in food products ; he creates elementary utility. 
The railroad or other transportation agency creates 
place utility, for example, by bringing wheat from a 
Northwest farm to a Minneapolis flour mill. A grain 
elevator, a storehouse or an ice house, to use an old 
example, serves to create time utility. A flour mill 
or any other manufacturing establishment creates 
form utility, or what one economist has named "ma- 
terial utility." A merchant or dealer may create 
time, place, possession, and even form utilities. A 
housewife likewise creates time, place, possession, 
and form utilities. Any activity that contributes to 
human satisfaction, either directly or indirectly, is 
productive. ' One person desires the services of a 
preacher, another wants music, another enjoys the 
theatre, another requires the services of a physician. 
A student may prefer to attend a university in a large 
city because of the music and the plays of good qual- 



46 ELEMENTARY CONCEPTS 

ity that he can hear and see in greater abundance in 
such a city. The security afforded by a good police 
force certainly has utility aside from its promotion of 
industry and commerce. The wise advice of a good 
attorney certainly has value even aside from its rela- 
tion to the client's business, it has psychological value. 
Likewise the satisfaction that one has in feeling or 
knowing that his teeth, for example, are being well 
cared for by a competent, conscientious dentist is 
something of value. The dental surgeon is creating 
besides material utility, a utility which might perhaps 
be called psychological utility. Production is the 
creation of utility, therefore any activity that in any 
way meets the demand for "necessaries, comforts and 
enjoyments" is productive. (P) 

B. Differences in Utilities. 

Utilities differ as to their moral value. Some are 
good and wholesome ; some are pernicious. They dif- 
fer also in that some correspond to necessity, others, 
to convenience, still others to luxury. Whether a utility 
is good or bad is a question frequently answered in 
two ways even by scientific experts. In Germany for 
example, a strong effort, backed up by expert opinion, 
is being made on grounds of industrial and military 
efficiency to cut down the consumption of beer ; in this 
country you find some experts testifying to the health 
value of beer. Some food experts uphold the use of 
chemical preservatives in small quantities ; others 
declare against them. 

A thing or a utility may be a necessity or not a 
necessity, from the point of view of occupational effi- 
ciency or of living efficiency. A motor car may be 
deemed necessary to business or professional effici- 
ency. Another motor car may be regarded as neces- 
sary to its owner, in order that the owner may keep 
up to the social standard of his or her class. The 
question of necessity is a matter of competition, and 



ELEMENTARY CONCEPTS 47 

of personal or of class standards. Many a working man 
puts a high value on tobacco. To get it he will even 
sacrifice things that the student reader would regard 
as decidedly more important. While the tobacco 
habit is fastened upon him, however, the workman's 
ability to work and his agreeability in his home will 
be increased perhaps by his consumption of an article 
that may be shortening his breath and injuring his 
throat. For him, however, the tobacco is a psycholog- 
ical necessity. The standards of certain occupations 
require of those following them, certain standards of 
dress, and living quarters of certain degrees of re- 
spectability. Electric fans in class rooms, and first 
class university conducted lunch rooms on the cam.pus 
some regard as necessary ; others may not so regard 
them. Many an employe today would regard a vaca- 
tion as a luxury, but as we become more civilized, 
vacations will come to be generally regarded as neces- 
sities, just as will ventilated cars, smokeless cities, 
clean streets, and sanitary habits. Bare necessities 
of physical efficiency may be talked about, but even 
there the psychic element cannot be excluded, for 
physical efficiency depends in no slight degree upon 
state of mind. Criteria of necessity can be deter- 
mined only by reference to personal, class, occupa- 
tional, and social standards. 

Economic activity not necessarily connected with finan- 
cial payment. 

Economic activity includes efforts for which no 
financial payment is made. A public spirited citizen 
may give his services free to the work of providing 
fresh air camps for children and adults who could 
not otherwise secure relief from the heat of the city 
and recuperation from their year's work in school or 
in industry. A club woman gives her services to the 
establishment of Modified Milk Depots, or to helping 
by instruction or otherwise some shop girl, or per- 



48 ELEMENTARY CONCEPTS 

suades the business men of her city that smoke pre- 
ventors are economical, both from the business and the 
social point of view. A housewife may manage her 
house and receive no definite wages or salary, al- 
though in a modernly managed house, she would 
receive a definite money salary or allowance, be- 
sides being allowed a definite sum to finance her 
business of housekeeping. The money salary, 
however, is obviously absolutely unessential so far 
as the economic character of her activity is con- 
cerned. As purchasing agent for her family, she is a 
producer of possession utility. As a skillful purchas- 
ing agent and household manager, she saves not only 
for her family but for society. Lack of skill in buy- 
ing would make the running of her house more ex- 
pensive ; lack of skill in using what she buys would 
mean a smaller flow of utility from what she bought. 
A nation producing X units of food will have more 
to eat, if its housewives are careful and skillful. Every 
housekeeper, whether she receives wages or not, 
is conducting a manufactory in which she produces 
utilities essential to the health, the efficiency, and the 
happiness of the members of her household. Such an 
exposition as this seems necessary to disabuse many 
of the idea that Economics or Political Economy is 
merely Commercial Political Economy. 

D. Work for the sake of the self-expression and the develop- 
ment of the worker. 

Work can have for its end self-expression and 
development for the worker. Some work has this end. 
Work wherever possible should have for its end self- 
expression and development for the worker through 
service to others. "Human happiness is based upon 
the possibility of a natural and harmonious satisfac- 
tion of the instincts. One of the most important in- 
stincts is usually not recognized as such ; namely the 
instinct of workmanship. Lawyers, criminologists, 



ELEMENTARY CONCEPTS ' 49 

and philosophers frequently imagine that only want 
makes one work. This is an erroneous view. We are 
forced to be active in the same way as ants or bees. 
The instinct of workmanship would be the greatest 
source of happiness if it were not for the fact that 
our present social and economic organization only 
allows a few to gratify this instinct. Robert Mayer 
has pointed out that any successful display or setting 
free of energy is a source of pleasure to us. This is 
the reason why the satisfaction of the instinct of 
workmanship is of such importance in the economy 
of life, for the play of the child, as well as for the sci- 
entific or commercial work of the man." (Professor 
Jacques Loeb, M. D. "Comparative Fhysiology of the 
Brain and Comparative Psychology, p. 197, quoted in 
Social Ideals of William Morris, by Dr. Anna Au- 
gusta Helmholtz-Phelan.) "The same idea of joy in 
work is expressed by the man who says with perfect 
sincerity: 'Business is fascinating; it is fun'." (Dr. 
Anna Augusta Helmholtz-Phelan ; Social Ideals of 
William Morris.) 



SECTION 9 continued. 



Ely ch. VII. 

1. Motives for economic activity. 

(a) welfare of self, 

(b) welfare of others, 

(c) desire for esteem of others, 

(d) desire for power, 

(e) desire for activity, 

(f) religious or ethical feeling. 

2. Meaning of utility. 

3. Distinction between free and economic goods. 

"Economic goods are those which exist in quanti- 
ties less than sul^cient to satisfy all wants for them. 
... It is, however, their scarcity and not the fact 
that they have cost labor that makes them economic 
goods," says Dr. Ely. 

"In general it may be said that whenever the 
spontaneous supply of any good exceeds the desire 
for it, units of that good will be free." (Prof. Seager) 
Dr. Ely says further "Air and water, for instance. 
we seldom think of as things we want at all." This 
statement may be questioned in these days of at- 
tempted sanitary living. Good air, even in the coun- 
try, is not to be had unless measures are taken to 
keep down the dust. Land is often not a free good 
even when the supply of it exceeds the demand. It 
is probable that this old distinction so-called be- 
tween free and economic goods is of doubtful value, 
that instead of free and economic goods we might 
better speak of free and unfree goods. (P) 

4. Are personal qualifications goods? 

Goods equal material things and services. 
Wealth from the individual point of view, from 
the social. 



ELEMENTARY CONCEPTS 51 

5. Difference between wealth and income. 

6. Distinction between individual and social wealth. 

There is some distinction between individual and 
social wealth, but the Text overdraws it. For example, 
according to the Text there is no social loss when a 
merchant loses his established trade. However, the 
merchant may lose his trade because of the higher 
money cost of his goods, which may, however, have 
a lower real cost. For example, a Minnetonka Model 
Dairy with a $45,000 dairy barn undertook to supply 
Minneapolis babies with pure and rich milk. People 
in sufficient number would not pay the price neces- 
sarily asked, although the dairy was willing to con- 
tribute something in the form of a substantial yearly 
loss. The dairy was obliged to give up its Minneapolis 
business. How much health and life too was lost in 
consequence is an unanswerable question. A widow's 
paper evidence of wealth is burned up in another 
case. Some one else benefits thereby, but notwith- 
standing, there may be a net loss to society through 
the inability of the widow's children to get the edu- 
cation that would fit them to contribute liberally to 
social welfare. In another case, X. is the son of an old 
family of prominence ; Y, an ex-servant of the family 
and possessed of considerable property, wishes and 
intends to leave it to X, but she dies without leav- 
ing a will, and the property becomes escheat to the 
state. The little benefit that the state thereby derives 
may be small compared with what society would have 
gained through the increased good citizenship and 
other service-giving value of X possessed of the ad- 
vantage of the property of his beloved old nurse. In 
still another case, a court may declare that a certain 
piece of property belongs to A. instead of to B. If, 
however. B. could have made better use of the prop- 
erty than A. there is social as well as individual loss. 
The Text on page 99 and again on page loi is too 



ELEMENTARY CONCEPTS 

• positive in its statement that when a franchise (a 
grant, say, to run a street railroad) is declared invalid 
there is no social loss. If a new franchise cannot be 
negotiated on terms as favorable to the public as 
the terms of the old franchise, or if those who secure 
the new franchise are less capable of rendering good 
service to the public, social loss certainly results. The 
social value of property depends in no small degree 
upon how it is used. Economists often tend to draw 
too strict a line between individual and social wealth. 

(P) 
Wealth and Value. 

The statement "Thus free goods have no value, 
not "because they do not satisfy important wants, but 
because these wants do not ordinarly go unsatisfied'' 
p. lOO of the Text might better read "Thus free goods 
have no exchange value, etc., for they certainly have 
use value. 
Differences between consumption goods and production 
goods. Between land and capital goods. 

Capital goods may be defined as the concrete re- 
sults of past production used for further production. 
The Text book classification of land, capital goods, 
and consumption goods fails to distinguish between 
land used for business and land used for consumption. 
Furthermore, either the above definition of capital 
goods is incorrect, or a kitchen range or a piano is 
a capital good. The difference and the similarity be- 
tween a plow and a family piano, for example, can 
be conveniently indicated by calling the plow, busi- 
ness capital or a business capital good, and the piano 
consumption capital or a consumption capital good. 
The name capital good is frequently given to concrete 
goods and the name capital to the fund of value em- 
bodied in such concrete goods, but very frequently 
the word capital is used indifferently as applying to 
either the goods or the fund of value. 



ELEMENTARY CONCEPTS 53 

Professor J. B. Clark makes a distinction between 
active and passive capital goods; active capital goods 
impart utilities, as e. g. a hammer, or a machine : pas- 
sive capital goods receive utilities, as e. g. wheat for 
manufacture into flour. (P) 
9. Comparisons of Wealth (in the ordinary, concrete, ma- 
terial sense). 

(a) difificulty of getting reliable information, 

(b) the value of money changes, 

(c) free goods are not included, 

(d) rivers and harbors are not included, 

(e) patents, monopoly advantages, and capitaliza- 

tion of earnings enter into estimates of wealth, 

(f) speculative tendencies influence values, 

(g) personal services are omitted, 

(h) per capita weath is of more importance than 
total wealth. 
The student is warned that the Text uses the word 
value on pages 103 and 104, in the sense of exchaiige 
value only. 
ID. A Nation's income — equals the stream of utilities that 
flow from the use of its consumption and business capi- 
tal, and from personal services which sometimes are 
not readily identified with the use of capital goods. 
II. Economic aims: the biggest and best income at the low- 
est cost in terms of human life and happiness, and an 
equitable distribution of such income. (P) 



SECTION 10. 

Consumption, 
Ely. Ch. VIII. 

1. Definition of Consumption. 

According to the Text "Consumption in economics 
means the use of goods in the satisfaction of human 
wants, which is the purpose of a large part of our 
economic activity." 

Very serious objection may be raised to this defini- 
tion for the reason that a not inconsiderable part of 
economic activity results not in goods but in im- 
material utility, e. g. various kinds of education, and 
the work of the musician or the actor. A body of stu- 
dents listening to a lecture in economics may be con- 
suming education or instruction, likewise a body of 
physicians, at a post mortem examination, or at a lec- 
ture in the future on how was discovered the yet un- 
discovered specific remedy for tuberculosis, or cancer 
perhaps, or a body of teachers listening to a lecture 
on the value of Professor Boris Sidis' theory that the 
teacher should rely upon enthusiasm and inspiration 
rather than upon discipline and authority, or a body 
of engineers listening to a demonstration of aerial 
navigation, or a body of people listening to a Wagner 
opera, or viewing the performance of a great actor ; all 
of these people are consuming. The burden of proof 
lies upon the economist who holds to a material point 
of view. 

Consumption may better be defined as the use of 
the utilities that flow from either goods or services. 

(P) 

2. Purpose of Consumption. 

Consumption may be viewed as a means or as an 



CONSUMPTION 55 

end. As a means, chiefly with reference to the ordi- 
nary and more sordid utilities ; as an end, with refer- 
ence to the higher and more aesthetic forms of con- 
sumption. This distinction grows with the growth 
of culture and with the development of a people 
intellectually, spiritually and aesthetically. 

Ethical aim in consumption : a well harmonized, 
well-balanced sane consumption such as will pro- 
mote a maximum of health, and of industrial, social, 
and civil efficiency in every human being. (P) 

3. Distinction between productive consumption and final 
consumption. 

In accordance with our distinction between business capital 
and consumption capital, such things as a household range or 
flour in a family kitchen, or a family piano are involved in 
productive consumption. 

4. (a) Human wants with respect to growth of and sati- 

ability of such wants. 

The law of diminishing utility, 
(b) Relation of time to diminishing utility. 

Is money subject to the law of diminishing 

utility? 
Relation of satiability and new wants. 

5. Marginal utility. 

Does total subjective value equal marginal utility multi- 
plied by the number of units? 

6. Maximum utility the aim in fashioning one's consumption. 

7. How can we consume future products? 

8. Consumption versus saving: Agencies and institutions 

that encourage saving? 
g. Luxury is excessive consumption. 

Dr. Ely's discussion of luxury is very excellent. 

(a) Time, place, and person as related to luxury. 

(b) Three ideas as to a just apportionment of 

wealth : 

(i) equality of utilities; 



56 CONSUMPTION 

(2) Utilities according to production or 

service ; 

(3) utilities according to need. 

(c) What is the basis of apportionment or dis- 

tribution within the family? 

(d) Is distribution morally and socially right to- 

day? More democratic education. Why should 
not the public authority send abroad for musi- 
cal training the boy or girl who gives great 
musical promise for example? 

(e) Excuses for luxury: It is mine. It employs 

labor. 

10. Harmful consumption impairs human energy and also the 
best that is in life. 

Some employers will not hire drinking men. 
"Printer wanted : no booze or cigarettes." 
"No booze fighter need apply." 

The above are somewhat rude but significant excerpts from 
the advertising columns of a local paper. 

11. Ernst Engel's laws: income and food; and clothing; and 
lodging, fuel and light; and sundries. Engel's idea of a social 
signal service. 

12. Percentage of income spent for food. 

United States. Income 1200 or more.. food 29% 
Income 700 food 38% 

Income 200 to 300 food 44% 

13. Statistics from 212 Minnesota families; 

% for 
% for all other 

% for rent fuel and light purposes 
20.3 9. 14.5 

19.7 6.6 28.6 

17.9 6.4 36.4 

15.5 ' 6.3 40.8 

16.2 5.9 46.2 

138 5-1 52.5 

Report Minnesota Bureau of Labor 1909-10, p. 561. 



(a) Income 




per week. % 


for food 


10.00 — 14.99 


56.2 


15.00—19.99 


45- 


20.00 — 24.99 


394 


25.00 — 29.99 


374 


30.00—34.99 


317 


35.00 and over 


28.6 



CONSUMPTION 57 

(b) 212. families arranged in eight groups accord- 
ing to size of family; weekly income of father 
17.14 to 18.86 — av. 18.12; weekly income from 
other sources .91 to 10.51 — av. 4.07. 
Minnesota Labor Bureau Report, 1909-10, p. 

559- 

Cc) Without giving any supporting evidence, the 

Minnesota Bureau of Labor declares $2.50 a 
day to be essential to comfort and efficiency 
in Minnesota for a family of five ; $7.00 a 
week is given as a necessary woman's wage. 
Professor Chapin's figure for New York City 
is $14.00 a week for a family of five. 



SECTION II. 

Production. 
Ely, ch. IX 

1. The factors of production. 

Definitions of labor and of capital ; of fixed and circulating 
capital. 

2. Marginal utility and disutility. 

3. Cost (expense) of production versus social cost of pro- 

duction. 

5. Function of the entrepreneur? 

6. Division of Labor: 

(a) advantages of; time, skill, labor advantage, in- 

ventions promoted, better use of capital, sub- 
stitution of machinery facilitated, 

(b) disadvantages of: efifects upon the worker, 

(c) Art and machinery. 

(See Dr. Anna Helinholtz-Phelan, Social 
Ideals of William Morris.) 

(d) The Greeks appreciated the value of machinery 

as a means of lessening human labor, w^hereas 
the modern too often thinks of it merely as 
an excellent arrangement for making prod- 
ucts more cheaply. 
In this connection and also with reference to Aristotle's de- 
fence of slavery, note the following irony of Karl Marx, the 
great Socialist : 

"They, (The Greeks) did not for example comprehend that 
machinery is the surest way of lengthening the work day. 
They perhaps excused the slavery of one on the ground that it 
was a means to the full development of another. But to 
preach slavery of the masses, in order that a few crude and 
half educated parvenus might become 'eminent spinners,' 'ex- 
tensive sausage-makers,' and 'influential shoe-black dealers,' — 



PRODUCTION 59 

to do this they lacked the bump of Christianity." Karl Marx, 
Capital 407. (P) 

7. Territorial Division of Labor. 

Look up as suggested in the text; 

8. Productive organization of the American people: 

census 1900; number in "gainful occupation?" 
Should housekeepers in their own houses be counted 

as gainful workers? 
What per cent are in agriculture? Does the falling off 

here mean necessarily a less quantity of crops? 

9. Efficiency of production depends upon: 

(i) character of natural resources, 

(2) character of capital goods available, 

(3) character of workers as individuals, 

and also their cooperative ability. 

(P) 

10. Capitalistic production: 

(i) from technical point of view it means 
production by means of usually a 
very considerable body of capital 
goods ; 

(2) from the labor point of view, produc- 
tion by means of empty-handed, 
capital-less hired labor. (P) 



SECTION 12. 

Business Organization. 
Ely. Ch. X. 

1. Unfortunately acquisition is the dominant idea in busi- 

ness (the professions should be included here). 

Too many business people are governed by loose business 
methods and loose ethics. 

Our business and our social life would both be more condu- 
cive to justice and social welfare, if both were characterized 
by the punctuality and precision that well conducted bif^ness 
shows, and by the courtesy, cordiality, and fairness that char- 
acterize the best social relations. Many desire more freedom 
and informality in social than in business life, but it is clear 
in any case that a double standard of ethics is to be con- 
demned. (P) 

2. A simplified balance sheet. 

Meaning- of surplus, capital, stock dividends. 

3. Types of business organization : 

(a) the single entrepreneur ; 

(b) the partnership ; 

(c) the limited partnership ; 

(d) the corporation ; 

(i) a legal person, 

(2) advantages of the corporation over the 

partnership, (see Ely, p. 148). 

(3) corporation charters by special acts as 

opposed to those granted under 
general laws, 

(4) eiTect of the Dartmouth College case, 

(5) effect of lack of uniformity in corpora- 

tion law. The rule of interstate 
comity. 

(6) Corporation capital and securities. 
(aV capitalization corresponds, where 



BUSINESS ORGANIZATION 6i 

the law requires it, as in Massa- 
chusetts, to the amount of 
money or value actually put 
into a corporation. 
However, capitalization fre- 
quently means the value put by 
its owners upon the corporation's 
business without reference to the 
amount actually paid in. This 
may arise from the failure of the 
stockWders to pay up their stock, 
or from its sale at a discount, or 
from the issue of stock dividends 
or of bonuses. Business usually 
prefers a capitalization based on 
earning power. (P) 

(b) Stocks: preferred, cumulative or 

non-cumulative, participating", 
or non-participating in surplus ; 
common stock. 

(c) Bonds : mortgage, collateral trust, 

income and debenture. 

(d) Relation of stockholder to his 

corporation; of bond holder. 
(7) Over capitalization or stock-watering : 
Evil of with reference to the con- 
sumer, to the investor. 
The special case of public service cor- 
porations. 

The law should regulate very strict- 
ly the issue of stocks and bonds, and 
the declaration of dividends, and it 
should particularly prohibit pro- 
moters and underwriters from sell- 
ing their securities received for pro- 
motion work, for say five years. (P) 



62 BUSINESS ORGANIZATION 



(8) Corporation Management : 

(a) in form, (see Professor Seager, 

Introduction to Economics, 146- 

9)- 

(b) in efifect. 

(9) The Great Evil of Corporation Man- 

agement for the purpose of gain 
through traffic in securities, the 
valvies of which are manipulated 
through such management. 

(10) Efifect of corporations upon the rela- 

tions between business and men. 

(11) Trusts: 

(a) Technical meaning of trust, 

(b) The holding company. 

(i) evils of: minority stockholder, 
responsibility, complexity. 

(c) Aim of the trust promoter. 

(12) Anti-Trust Laws : 

(a) State : provisions against combi- 

nations in restraint of trade, de- 
fects of ; 

(b) The Sherman Anti-Trust Law of 

1890, its defects. In May 191 1, 
the U. S. Supreme Court in de- 
claring for the dissolution of 
the Standard Oil Co. and the 
American Tobacco Co. decided 
that the Sherman Anti-Trust 
Act prohibits only combinations 
that are unreasonable and 
harmful. Such a modification of 
the law as formerly understood, 
many desire, but many others, 
including Justice Harlan, believe 
that it should not have been ef- 
fected by judicial legislation. 



BUSINESS ORGANIZATION 63 



(13) Value of Publicity: 

(i) Opening accounts to stockholders 
or to government officers. 

(2) making financial statements to 
stockholders or to government 
•officers. The Federal corpora- 
tion income tax of 1909 affords 
publicity of corporation ac- 
counts, for benefit of stockhold- 
ers. 

(14) Federal License as a means of regula- 

tion. 



SECTION 13. 

Value and Price. 
Ely. Chs. XI and XII. 

1. (a) Distinction between value in use or subjective 

value and value in exchange or objective 
value ; 
(b) Meaning of price. 

2. Valuation as the problem of the division of utilities (dis- 

tribution of wealth) among the different factors of pro- 
duction and the different social classes. Determination 
of the value of labor is complicated by the complex char- 
acter of production. 

3. Definition of Market. 

4. Forces determining market values: public authority, 

monopoly, custom, competition. 

5. Are competitive prices necessarily natural and right 

prices? 

6. Explaining price merely by demand and supply is like 

arguing in a circle. 

7. Factors influencing demand: tastes, habits, purposes, price. 

Meaning of Margin of Consumption. How do com- 
modities or utilities compete? 

8. Elasticity of Demand: Relation of necessity, habit, ready 

substitutes, size of income, temperament, (the last is 
not mentioned in the Text). 

9. Consumers' surplus. Does a lo\ver price ever decrease de- 

mand? 

10. Supply is affected by estimates of present or of future 

prices, of not simply demand but of effective demand. 

11. Price tends to be fixed by the marginal seller and the 

marginal buyer. The marginal seller is the seller with 
the greatest cost of production. The marginal buyer 
is the buyer for whom the commodity or service has 
less utility than it has for any other buyer. (The stu- 



VALUE AND PRICE 65 

dent will be held responsible for a graphic exposition 
of this). 

12. Producers' Surplus. 

13. Factors on both sides in price determinations. 

In the determination of price, there is on the demand side, 
the utility of the thing being priced plus the purchasing power 
of the buyers ; on the supply side, the availability and char- 
acter of natural resources, labor and capital conditions, and 
the producers' calculations of the market possibilities and 
probabilities. (P) 

14. Normal Value is marginal cost of production. Tendency 
of price to equal cost of production depends upon fluidity of 
business ability, of labor, and of capital. 

15. Expenses of production: increasing; decreasing; or con- 
stant ; examples of. 

16. Constant expenses or costs, or overhead charges, and 
variable expenses or costs. 

17. Costs or expenses increasing or decreasing within limits. 

18. Joint expenses of production. Coke and gas for example. 

19. Opportunity for bargaining, especially for non-standard- 
ized goods. 

20. Valuation of non-reproducible goods, as great works of 
Art. 

21. Retail prices are affected by agreements, by custom, by 
desire to advertise, (do not be misled by statement at top of 
p. 180 "demand and supply governs retail prices etc." for as 
the Text authors have already explained "demand and supply" 
but poorly explain price.) 

22. (a) The idea of just price, objective in character; 

(b) Idea of natural price; amount of labor, cost of 

production. 

(c) Revival of the fair price idea. 

23. How can you value objects not offered for sale? Imputed 
Value. 

24. Theory of value developed by Karl Marx. 

(The writer is unable to discover from a study of 
Marx, that he believed that labor determined the value 



66 VALUE AND PRICE 

at which things ought to exchange, as stated in Text, 

top of page 184.) 
25. The cost theory of value presupposes demand; the utiHty 
theory presupposes supply. Marginal cost and marginal util- 
ity interact to determine price. 



SECTION 14. 

Monopoly. 
Ely. Ch. XIII. ' . 

1. Distinction between monopoly and competition. 

2. Definition of monopoly. 

(a) Literally, monopoly means exclusive right or 

power of selling. 

(b) In a very broad sense it might be applied to an 

exclusive right, power, privilege, opportunity, 
possession or control. 

(c) However, in economic discussions, monopoly 

usually means such a control of the supply of 
a utility or of the market for it as affords 
power to dictate terms and prices. 

Monopoly asserts itself in buying as well as in 
selling. By controlling the means of transport- 
ing a commodity to market, or through exclu- 
sive control of the process for which a com- 
modity is produced, the monopolist has some 
considerable power of dictating the prices at 
which he will buy. 

For example, he may control the railroads run- 
ning from a coal mine with the result that he 
may not only control the price of coal to the 
wholesaler, but he may force the mine owner 
to sell out to him. One of our very consider- 
able economic evils has been railroad control 
of the supply of the commodities which the 
roads carry. Suppose in another case that a 
monopoly controlled all the machinery evolv- 
ed for making say beet sugar. In that case 
the monopoly would be the sole buyer of 
sugar beets. (P) 



68 MONOPOLY 

3. What was the source of monopoly in the time of Queen 
Ehzabeth for example? 

4. What three kinds of monopoly granted by public authority 
were excepted in framing English and American prohibitions 
of monopoly. 

5. Difference between monopoly and differential advantage, 
for example in the case of land. 

6. Distinction between monopoly and merely large scale 
production. 

7. Classification of monopolies: 

(a) on basis of ownership ; Public, Private, Quasi- 

Public. 

(b) on basis of source; Social, Natural. 

(The Text definition of social monopolies on p. 
194 is inconsistent with the classification just 
above it.) 

(c) Personal, Legal, Natural, Monopolies of Organ- 

ization. (P) 

8. For what purposes are legal monopolies created? 

9. What is a natural monopoly? 

10. Is there such a thing as a capitalistic monopoly? 

11. Relation of monopoly to area affected? 

12. Monopoly price: 

The monopolist endeavors to fix upon the supply and the 
price that will yield the highest net returns or net profits. He 
is governed therefore by the elasticity of demand, and by 
fluctuations in his costs of production. 

13. Taxes on monopoly: 

A fixed tax on net revenue cannot be shifted because it does 
not effect variable expenses ; a variable tax laid in proportion 
to amount of business may be shifted in whole or in part. 

14. Limitations on monopoly price: 

(a) danger of substitutions, which depends upon 

habit, degree of wellbeing, disposition in 
spending money ; 

(b) fear of regulation ; 

(c) possibility of competition. 



MONOPOLY 69 

15. Monopoly price, according to class, illustrated by rail- 
road traffic. 

Monopoly price according" to use. 

16. Low competitive prices on "leaders." 

17. Economical buying: 

On p. 205, Dr. Ely says truly that "Many persons would 
be a bit ashamed to divide their groceries among half a dozen 
grocers so as to get at each place the article selling at a special 
price." Do you think that they should be ashamed to do so? 

18. Competitive prices according to class. 
ig. Is Monopoly price a High Price? 

Monopoly gains : 

(a) through economies, 

(b) through high prices. 

The judgment of history, of courts, of commissions on the 
character of monopoly prices. 

20. Relation of monopoly to large fortunes. 

21. Shall all monopoly be abolished? 
Relation of monopoly to economic democracy. 
The aim of public regulation of monopoly. 

22. The trust problem is a double one : 

(a) problems of large scale business ; 

(b) problems of monopoly. 



SECTION 15. 

Money. 
Ely. Ch. XIV. ■ 

1. Money necessary to exchange. 

Credit systems of to-day and systems of valuation are de- 
pendent upon money. 

2. Meanings of the word money: 

(a) a "monied" man. 

(b) "money market" (generally exchangeable pur- 

chasing power). 

(i) money in the strict sense (standard 
of value, medium of exchange, and 
storehouse of value), 

(2) money in the legal sense (legal ten- 

der), 

(3) money in the general or popular sense 

(what is generally accepted in ex- 
change, in payment of debts, and in 
discharge of contracts. (P) 

3. Different commodities have served as money. 

4. Coinage. 

5. The theory of seigniorage. 
Influence of foreign trade on seigniorage. 

6. Why is a dollar in one kind of United States money equal 
to a dollar in any other kind? How are the values of gold 
coin and gold bullion kept identical? What is standard money 
in the United States? 

7. (a) Are our silver coins worth their face value in 
gold? 

(b) What kind of money are they and why? 

(c) Is the amount made by the Government on its 

limited coinage of silver both an asset and a 
liability in the government accounts? 



MONEY 71 

8. (a) Has the United States ' always had the same 

monetary standard? 

(b) What is bimetallism? 

(c) Chief advantage claimed for bimetallism. The 

counter objection. 

(d) The reply of the bimetallists. 

(e) The testimony of history on the question of bi- 

metallism. 

9. International bimetallism. 

Bimetallism from the silver point of view has ceased to be 
of interest. However, gold has since 1897 been contributing 
to a rise of prices in such a way as to discredit the gold stand- 
ard. Between 1873 and 1896 it contributed to a fall in prices. 

(P) 
(This will be discussed again in Section 17.) 

10. Bimetallism in the U. S. 

(a) Coinage acts of 1792, 1834, 1853, i873» 1878, 

1890, 1893. 

(b) Differences between the silver coinage act of 

1878 and the silver purchase act of 1890. 

(c) The ''endless chain." 

(d) The free silver campaign of 1896. 

(e) The gold standard act of 1900. 

11. The motive for issuing Government paper money. 

The difference between such money and Government bonds. 

12. The evils of American Colonial and Revolutionary bills of 
Credit. 

13. The Greenbacks. (The first greenback issue was author- 
ized by an Act of February 1862). 

If Congress had heeded Secretary Chase when he proposed 
a National Banking scheme, the issue of the greenbacks might 
have been avoided. Give a brief outline of greenback history, 
including their affect on prices and wages. (P) 

Are the greenbacks desirable? 

14. What fundamental mistake was made by the advocates 
of fiat money? 

What was the standard of value during the Civil War? 



SECTION i6. 

Credit and Banking. 
Ely. Ch. XV. 

1. How does a credit diiTer from a cash transaction? 

2. Indicate how the bank check is used. 

3. The need of personal credit in business. 

4. Upon what two things does personal credit depend? 

5. How is personal credit made available as a medium of 
exchange? 

6. Does a bank deposit always represent a deposit of money? 

7. Why should a bank's assets be fluid? 

8. The state of the money market depends upon business 
conditions, and the banker's forecast of future conditions. If 
things look unpromising to the banker, he is eager to build up 
his reserves, he is very cautious about making loans and in 
order that he may build up his reserves, he raises his discount 
rate. Money is under such circumstances tight. When all 
conditions are favorable, crop conditions, political conditions, 
trading conditions, and the business world is optimistic, 
money is easy, bank credit can then be had on reasonable se- 
curity and at reasonable rates. (P) 

9. How does a bank note resemble a bank deposit? 
Bank notes before the Civil War. 

10. The National Banking System : 

(a) origin of, 

(b) general character of, including the Reserve Sys- 

tem. 

11. New York as the Money Center of the Country. 

(a) Center for trade with Europe. 

(b) The great Central Reserve City. 

12. New York Speculation. 

1910 ; Ratio of demand loans to total loans, in 
New York 44% 
Chicago 22% 



CREDIT AND BANKING H 

St. Louis 33% 

St. Paul 21% 

Minneapolis i8% 
Relation of the reserve to speculation. 

The "dead line" character of our reserve system in so far 
as extension of credit is concerned. 

13. The Independent Treasury System. 

14. The movement of credit and of money. 

15. Fault of bond-secured bank-notes. Remedy. 

16. The Aldrich-Vreeland law. 
Emerg-ency currency and bank federations. 
Correction: the 30% provision. Text top p. 262, applies to 

Commercial paper only; 95%, in sixth line p. 262 should read 
90%. 

17. The Central Banks of Europe. 

18. Different kinds of banks in the United States. 

In the Minnesota Revised Statutes of 1905, look up the 
chapter on Banking; also look up the session laws passed 
since 1905. 



SECTION 17. 

Other Problems in Money and Banking. 
Ely. Ch. XVI. 

Business crises. 

(a) The relation of business prosperity to crises. 
Bank credit depends upon the character of per- 
sonal credit, and upon the money available 
for bank reserves. 

Personal credit depends upon present business 
conditions, and especially the business out- 
look. 

The business outlook and depression following- 
a crisis. 

(b) Poor adjustment of supply and demand. Wages 

lag- behind in times of prosperity. 

(c) Crop failures mean considerable decrease in pur- 

chasing power. Relation of poor crops to bank 
reserves. 

(d) EfTect of forced sales, of money hoarding, 

(e) Remedies : in integration of industry ; in organ- 

ization of labor. 
Changes in the value of money and the effects of such 
changes : 

(a) Money, bank reserves, and credit; 

(b) Effect of depreciating money ; 

(c) Social value of pre-crisis periods; 

(i) Period preceeding 1837, 
(2) Close of Civil War to 1873. 

(d) Increasing- volume of the standard money; 

(i) In the i6th century, 

(2) The California and Australia gold dis- 

coveries, 

(3) Industrial development in the United 

States since 1897, 



OTHER PROBLEMS IN MONEY AND BANKING 75 

(4) Business prosperity and the welfare of 
the whole people. 

(e) Effect of changes in the purchasing power of 
money ; 
The fact that an increasing value in money may 
cause a lower interest rate and vice-versa 
only partially mitigates the evil position of the 
debtor when prices are falling and of the 
creditor when prices are rising. 
While the exact influence of the volume of gold 
upon prices is not accurately understood, 
there can be no doubt that the falling value 
of gold which has contributed to a world wide 
advance in prices since 1897 is a matter of 
very great seriousness. 
Many suggestions have been made as to how 
changes in the purchasing power of money 
may be offset, among them the tabular or 
multiple standard, a list of commodities in 
terms of which contracts would be made, and 
recently the tentative proposal of Professor 
Irving Fisher (The Purchasing Power of 
Money, p. 337.) that one country, say Aus- 
tria, should continue on the gold standard 
basis, while the other important countries 
should close their mints to the free coinage of 
gold. They would then maintain their cur- 
rency at a par with gold by dealing in drafts 
for gold drawn on Austria, and Austria 
would establish as a unit not a fixed weight 
of gold, but gold of a fixed purchasing pow- 
er. (P) 
Index numbers. 

(a) An index number is a simplified number in terms 
of which quantitative changes are measured, 
e. g. a certain list of goods costs 4,500,000 in 
1897, in 191 1 it costs 6,750,000; taking the 



76 OTHER PROBLEMS IN MONEY AND BANKING 

figure for 1897 as a base and calling it 100, 
by simple proportion 4,500,00: 100:^6,750,000: 
X, we find that the index number for 191 1 is 
150; there has been an increase of 50%. Slide 
rules have been figured out, by means of 
which in ^ a simple mechanical way, large, 
cumbersome figures can easily be compared. 

(P) 

(b) Different averages; 

(1) arithmetical, 

(2) geometrical, 

(3) median, 

(4) mode. 

(c) Weighting. 

4. Value of money. 

(a) a decrease in the amount of gold, a higher mar- 

ginal utility and higher prices for gold in the 
arts, and a tendency for gold to flow from the 
monetary form into the arts, brings about a 
tendency to lower prices. 

(b) an increase in the amount of gold, a lower mar- 

ginal utility and lower prices for gold in the 
arts, and a tendency for gold to flow toward 
the mints, brings about a tendency to higher 
prices. 

(c) Gold output 1897-1911. 

5. The Rising Cost of Living since 1897. (P) 

(a) wholesale prices, 1897-1910: 

(i) Dun's plus Gibson's figures, 61%, 

(2) Bradstreet's figures ( 1896-1910), 61%, 

(3) United States Labor i>ureau figures, 

49%, 

(4) Canadian Department of Labor fig- 

ures, 47%. 

(b) retail prices ; 

(i) 1910 New Jersey Bureau of Labor 



OTHER PROBLEMS IN MONEY AND BANKING -Ji 

figures, from 1898 to 1910, food 
stuffs advanced 41%; 

(2) 1910 Ohio Commission on High 

Cost of Living figures from 1896 
to 1910 advance in: 
all prices 61%, 
provisions 'J2)%, 
wages less than 40%, 
(shorter hours, however, in 
many cases) ; 

(3) 1910 Massachusetts Commission 

on Cost of Living figures from 
1897 to 1910 advance in : 

prices 40%, 

wages 25% ; 

(4) 1909-10 Minnesota Labor Bureau 

figures, from 1890 to 1910, ad- 
vance in : 

meat and dairy products 50% 

to 60%, 
cereals 20% to 25%, 
in Minneapolis and St. Paul 
rents had not advanced, 
but the working family got 
about 20% less for its 
money in 1910. 
(c) The student should bear in mind that these sta- 
tistics are by no means absolute. They are 
only in each case the best ascertainable ap- 
proximations. 
It should be noted also that comparisons of 
prices take no account of quality. Many an 
article may increase 20% in price and depre- 
ciate 10% or 20% in quality, 
(d)' Reasons for the Higher Cost of Living: 
(i) Increased output of gold, 
(2) Expansion of credit, stimulated 



78 OTHER PROBLEMS IX MONEY AND BANKING 

by rising prices, and in turn 
stimulating increases in prices. 

(3) Speculation in food products, in- 

cluding speculative operations 
of storage and refrigeration 
companies. 

(4) War and consequent destruction 

of capital : 

(a) Boer, Spanish-American, 
Russo-Japanese, 

(b) Heavily increased ex- 
penditures for armies and 
navies, 

(5) Conversion of capital and labor to 

supplying the newly rich and 
prosperous with luxuries, which 
soon become necessities. 

(6) Higher Standards of Living : 

; Demand for better food, cloth- 

ing and shelter, for cleaner 
and better streets, better 
sanitation in general, more 
telephones, more amuse- 
ments. The vacation habit 
is emphasized by the Ohio 
Commission. 

(7) Waste: 

in public expenditures, from 
disease, accident, crime, 
pauperism, from careless 
housekeeping, from waste 
of natural resources, from 
excessive fire losses, includ- 
ing forest and prairie fires. 

(8) Country to City Movement: 

hence increased demand. 
There may be a difference 



OTHER PROBLEMS IN MONEY AND BANKING 79 

of opinion whether this 
means decreased supply ; 
perhaps the machine is dis- 
placing the man. 
(9) Tariff: 

decreases the field of competi- 
tion, and consequently en- 
courages combination. 

(10) Combination, especially in the 

packing business . 

(11) Expensive production: 

multiplication of small shops, 
development of package 
goods, of the delivery sys- 
tem, lack of market places, 
multiplication of middle- 
men. 

(12) Reduction in Hours of Labor. 

Many would not grant this to 

be a cause of higher prices, 

however. 

See the Report of the 1910 Massachusetts Commission on 

Cost of Living, also the Report of the Ohio Commission. (P) 



SECTION i8. 

International Trade. 
Ely. Ch. XVII. 

1. Character of international trade. 

2. Productive character of international trade. 

3. Desirability of some trade restriction, in the interest of 

justice and welfare. 

4. Attitude toward trade: 

(a) among ancient Hebrews and Chinese, 

(b) in Greece and Rome. 

(c) in the middle ages, 

(d) Mercantilism. 

(e) followed by laissez-faire and then by protection, 

(f) The idea of a favorable balance of trade. 

The true international balance. 
Four important facts related to the international 
balance question are : 

(i) things other than goods enter into in- 
ternational trade, 

(2) international trade statistics are not 

thoroughly reliable, 

(3) unanalyzed trade statistics teach noth- 

ing definite nor conclusive, 

(4) while a favorable balance may not be 

desirable, it is desirable that a coun- 
try produce more than it consumes, 
to the end that it add to its capital 
goods or increase its possession of 
capital goods in foreign lands. (P) 

5. The meaning and operation of Foreign Exchange: 

(a) analogy with domestic exchange, 

(b) settlement of accounts with England, 

(c) character of the foreign bill of exchange, and 



INTERNATIONAL TRADE 8i 

the process of its sale and purchase, 

(d) "triangular exchange," 

(e) the price of foreign exchange ; 

(i) difference between German and Eng- 
lish, and French exchange, 

(2) the gold points, 

(3) conditions affecting the price of for- 

eign exchange, e. g., export and im- 
port conditions and interest rates. 

(4) bankers' "finance bills," a means of 

borrowing abroad. 
Regulation of the gold supply: 

(a) by governments, 

(b) by the interest rate, 

(c) by price levels for merchandise, 

(d) the quantity of gold undoubtedly affects busi- 

ness conditions and hence prices. 
(Tt , is a little difficult to understand the word 
raise in the loth line from the bottom of page 
297, since the quantity theorists believe that 
prices vary directly with quantity of money.) 

(e) public interference with the gold supply; 

(i) Secretary Shaw: treasury loans to na- 
tional (depository) banks import- 
ing gold; gold in transit allowed to 
count as reserve. 



SECTION 19. 

Protection and Free Trade. 
Ely. Ch. XVIII. 

(For a discussion of the Aldrich-Payne tariff of 1909, see 
Review of Reviews, Sept. 1909, also North Am. Review, Oct. 
1909.) 

1. The question of protection versus free trade like most 
economic questions should be considered with careful refer- 
ence to time and place. ( P ) 

2. Arguments for protection: 

(a) Nationalism, (Prof. Schmoller's dictum), 

(b) infant industries, 

(c) military necessity, (munitions, industrial basis 

for taxation), 

(d) home market, 

(e) to prevent dumping, 

(f) the free trade nation may have only industries 

not desired by productive nations, 

(g) wages: protection makes high wages; high 

wages necessitate protection. 

3. Arguments for free trade: 

(a) natural right, 

(b) protection unconstitutional, 

(c) protection socialistic, 

(the above arguments are weak and out of 
date.) 

(d) comparative costs or territorial division of labor, 

(e) diversity of industry without protection, e. g. 

in the United States ; 

(f) home producers wall seek foreign markets, as 

seen in the United States ; 

(g) protection's labor argument doublefaced, labor 

competes with labor. Dr. Ely's analogy with 
the drink habit ; 



PROTECTION AND FREE TRADE 83 

(h) protection and revenue ; 

(note sugar statistics on p. 309, look up both 
Atlantic Monthly, March, 1908, p. 342, also 
Quarterly Journal of Economics, vol. XXII 
(1909), p. 548.) 
protection is for the benefit of one class to the 
detriment of another class, 

(i) protection leads to political corruption and un- 
due pressure in federal government. Presi- 
dent Louis R. Ehrlich of the Free Trade 
League urged in a speech at Boston, May, 
191 1 that even a tariff for revenue has the 
undesirable consequence of keeping the tariff 
question alive, of keeping intact all the ad- 
ministrative machinery for high protection 
and of keeping "in hungry suspense the ap- 
petite of the classes who have fattened on 
Protection favors." (P) 

(j) protection fosters monopoly. 

4. Reform of the tariff should be gradual. 

It is to be hoped that Congress will finally provide a per- 
manent and expert tariff commission to work out the tariff 
problem. 

5. One of the immediate demands of some tariff reformers 
is that the tariff be taken off of food products. Of course this 
suggestion usually comes from manufacturing sections, yet 
there is some truth in the contention that a farm is not so 
highly specialized as a factory, consequently the farmer can 
more easily change his crop if free trade bears down too hard 
on him. (P) 

6. James G. Blaine, when Secretary of State urged very 
strongly reciprocal trade arrangements with other countries. 
President Taft's plan for reciprocity with Canada is familiar 
to every American student. (P) 

7. Protection in the United States historically considered. 

Add to references on International Trade : 

Professor Gide : Principes d'Economie 



84 PROTECTION AXD FREE TRADE 

Politique ; or the 

English translation by Professor C. W. A. 
Veditz . 

Principles of Political Economy ; also Pro- 
fessor Seligman : Principles of Eco- 
nomics. 
8. The foreign trade of the United States : 

Foreign trade statistics, as has already been pointed out, 
may not tell the exact truth, owing to mis-statements of 
values, and to differing practices of evaluation. Furthermore, 
the true statistical picture of trade may be obscured by 
changes in the purchasing power of money, and by changes in 
quality that the mere figures, because of such changes in the 
purchasing power of money, tell us nothing about. In the 
banner year for cotton, the exports of that crop reached 585 
million dollars, but the quantity Avas less than in 1909 when the 
value was only 417 millions. Furthermore, the average ex- 
port price in 191 1 was 14.5 cents a pound, as compared with 
14.1 cents in 1910, and 12 cents in 1904. Statistics compiled 
and worked out by the United States Bureau of Labor indicate 
an increase in wholesale prices in the period 1897 to 1910 of 
49%. Other calculations indicate an increase of 61%. The 
above facts should be borne carefully in mind in examining 
trade statistics. 

In the fiscal year ending June 30, 191 1, the general exports 
of the United States for the first time exceeded two billion dol- 
lars; manufactures alone exceeded nine hundred millions, and 
it has been predicted that probably they will go over the bil- 
lion mark in the present fiscal year. Exports of manufactures 
have almost doubled since 1901, and have more than quad- 
rupled since 1891. The advance in the wholesale prices of 
manufactures howeyer, 1901 to 1909 was 18.6%. In the last 
fiscal year, there was an increase in the exportation of meat 
and dairy products of 19 million dollars, of corn 10 millions, 
of flour 2 millions, of cattle i million, but a falling off of 
25 millions in the exports of wheat. The last few years have 
shown but slight increases in our exports of foodstuffs. (P) 



SECTION 20. 

Distribution. 
Ely.Ch. XIX. 

1. Distribution as technically used in economics means the 
way in which the results of production are apportioned: (i) 
among the factors of production, land, labor, and capital; and 
(2) among the different individuals, families, and social clas- 
ses. 

In this technical sense, distribution refers to a result, or a 
condition, while in the ordinary sense or as it is used for 
example in speaking of railroads as distributive agencies, dis- 
tribution refers to a process. (P) 

2. Production and Distribution are interwoven in many ways. 

3. Existing institutions affect Distribution : 

(a) private property, 

(b) inheritance, 

(c) contract, 

(d) measure of guaranteed freedom, 

(e) political institutions, (see Professor J. Allen 

Smith, The Spirit of American Government, 
ch. on The Democracy of the Future). 

There are many, for example, who 
fear that a central bank in this coun- 
try would become an instrument of 
economic tyranny. And there are 
some who emphasize the undemo- 
cratic features of the federal and 
state constitutions as obstacles in 
the way of economic democracy. 

4. Education and ethical standards affect distribution. (P) 

5. Exception may be taken to the statement in the Text, p. 
319 that to explain the value which society puts upon personal 
services is to explain wages. This view of value emphasizes 
only utility, it disregards cost. Many a wage earner receives 



86 DISTRIBUTION 

less than the value of his work. The same exception may be 
taken to the similar statement regarding interest. Explana- 
tions of wages and of interest to follow will make this matter 
clearer. (P) 

6. The law of "diminishing productivity" or diminishing re- 
turns. The distinction made in the Text between "diminishing 
productivity" and diminishing returns seems unnecessary and 
perhaps undesirable. The law of diminishing returns applies 
to all three factors of production. This law may be con- 
veniently illustrated with reference to any one of the factors 
of production by assuming it to be a variable and the other 
factors to be constants. (P) 

7. The Marginal product of labor or of capital. 

Note graphic explanation of the marginal theory. 

8. Compare : 

"The last increment of capital — which just suffices 
to pay for itself — is the marginal increment of capital, 
and the added product attributable to it is the mar- 
ginal product of capital." Text top p. 324. The 
marginal unit just suffices to pay for itself, 
and 

"In order to achieve maximum profits, each entre- 
preneur will endeavor, so far as practicable, to appor- 
tion his use of land, labor, and capital so that the 
value of the increment of product attributable to the 
marginal unit of each factor in production will about 
equal its expense. Text top. p. 328. 

9. Comparison of the concepts of marginal utility and mar- 
ginal productivity. 

Note carefully the limitation of these two doctrines pointed 
out on p. 331 of the Text, near the bottom. 
Note also italics, p. 332 of Text. 

10. Social aspects of diminishing productivity or diminishing 

returns : 

(a) effect of increase in number of laborers, 

(b) effect of increase of capital, 

(c) effect of increase of land. 



SECTION 21. 

Personal Distribution of Wealth. 
Ely. Ch. XX. 

1. With respect to persons and classes, the significant ques- 
tion in Distribution is what share in the life of the nation is 
individual X, or class Y enjoying. 

Should the friend of better things for the masses be given 
pause by the statement that the working classes enjoy today 
things that once kings could not have? (P) 

2. Measurement of wealth, and income concentration: 

(a) classifying wealth and counting the number in 

each class; Despite the Text criticism of this 
method, some would regard the distribution 
in the second case of the Text book illustra- 
tion, p. 336, as less satisfactory than that in 
the first case. 

(b) observing the proportion of wealth owned by 

certain sections of a people, e.'g., the poorest 
third, etc. 

3. Measurement of the Distribution of wealth in the United 

States : 

(a) tax assessments as a means of measurement ; 

(b) probate records; 

(c) increase in the number of millionaires. 

4. Prussian statistics of wealth distribution. 

5. Economic progress and the condition of the working 
classes. 

6. Causes of poverty and of riches: two general classes of 
causes : New York Tribune investigation : protection, monop- 
oly, patents, land and large fortunes. 

7. Some causes of primary poverty according to the York 
investigation : low wages, large families, death of chief wage 
earner. 



88 PERSONAL DISTRIBUTION OF WEALTH 

8. Distinction between poverty and pauperism. 

9. Means of affecting the acquisition of wealth : 

(a) public absorption of unearned increments, aboli- 

tion of fraud and favoritism ; 

(b) prevention or correction of defectives ; 

(i) prevention of weak, diseased babies. 
The Text book statement, bottom 
p. 345, that "No individual would 
be deprived of any important right 
if a medical certificate of good health 
were m'ade a condition precedent to 
the granting of a marriage license" 
seems to imply that all applicants 
could furnish such certificates, or 
that those unable to furnish them 
would not look upon marriage as an 
important right ; it also disregards 
the fact that sometimes at least 
those below the normal in health 
may find in marriage valuable com- 
panionship. However, the state 
should take measures to prevent the 
ill-born child. (P) 

(2) education to promote more efficient 

production, 

(3) insurance against misfortune, 

(4) solution so far as possible of the prob- 

lem of unemployment, 

(5) safer and more convenient opportun- 

ities for saving, 

(6) promotion of public health. 
ID. Inheritance taxation in relation to Distribution. 

Dr. Anna Youngman, one of whose articles is referred to in 
the text now has out a book on large fortunes. See also Dr. 
G. P. Watkins, The Growth of Large Fortunes. Publications 
of American Economic Association, Third Series, Vol. VIII, 
No. 4. 



SECTION 22. 

Rent of Land or Ground Rent. 
Ely. Ch. XXI. 

The student is warned against such errors of exposition as 
the one at the beginning of ch. XXt of the Text, which be- 
gins with a statement of something that is new to the student, 
followed by a discussion of more familiar matter. Wherever 
possible exposition should proceed from the known to the un- 
known, from the familiar to the unfamiliar, from the simple 
to the complex. 

1. Meaning of Word Rent. 

One difficulty encountered by the student of economics is 
that the language of his subject is not infrequently used with 
a different meaning in everyday, ordinary discourse. The 
word rent illustrates this general difficulty. One may rent 
a house, a store, a costume, an automobile, etc. Literally rent, 
from the Latin reddere means what is paid back, consequently 
there is good reason for the common, ordinary use of the word. 
In German and French economic discussions rente means an 
income or revenue, usually from property, as e. g. a govern- 
ment bond or a share of stock in a corporation. In English 
and American economic writings, however, as a general thing, 
rent is what is what is paid for or may be imputed to the 
services of land. Sometimes, the conflict with common usage 
is avoided by employing the phrase ground rent, or land rent. 

(P)' 

2. Elements of the value of land in production : 

(a) extent, 

(b) fertility, 

(c) conformation, 

(d) natural location, 

(e) social location. 

3. No-rent land. Settlers in a new country, (add to refer- 



90 RENT OF LAND OR GROUND RENT 

ences, John Stuart Mill, Principles of Political Economy, ch. 
on Rent.) 

4. No-rent land is called marginal land. 

Rent due to the superior productiveness of the land for 
which it is paid or by which it is earned is called differential 
rent. Such is the rent explained in the Text. pp. 352-3. Rent 
to be imputed to a piece of land on the margin for a given use, 
because it would Ijring in a rent if devoted to an inferior use, 
is called marginal rent. Land on the margin for wheat might 
bring in a rent when devoted to grazing, (merely noticed on 
p. 358 of the text.) (Grasp both the graph on p. 352 of Text 
and also one to be given by instructor.) 

5. Rent from an Extensive or from an Intensive margin: 
Rent may be measured from either. An extensive margin is a 
unit of land that yields and just yields an amount equal to the 
cost of the labor and capital expended upon it. An intensive 
margin is a unit of labor and capital, applied to land above the 
extensive margin, and just yielding an amount equal to its 
own cost. (P) 

f\ More labor and capital used on better than on poorer 
lands. Note carefully graphic explanation, p. 355 of Text. 

7. Why is a given piece of land valuable? 

Suppose that you desire to make 10% gross upon any money 
that you may invest in land, how much therefore would you 
be willing to pay for a piece of land having an annual rental 
value of $1000? What name is given to the process by which 
one determines the value of a thing according to its earning 
power? 

What is the affect on land values of a falling interest rate? 

8. Why is it sometimes cheaper to rent land than to buy it? 

9. How do growth of population and increase of wants tend 
to affect rent? How is this affect counterbalanced to some 
extent? 

10. The Unearned Increment of land. 

The Henry George proposal. The single tax would not dis- 
turb ownership ; it would simply increase taxes on land up to 
100% of its rental value or up to such an amount as might be 



RENT OF LAND OR GROUND RENT 91 

needed for public expenditures. (P) 

11. The unearned increment in the city. 

Special taxation of city land values. 

12. The doctrine of land or economic rent is often referred to 
as the Ricardian doctrine of rent, but David Ricardo (an 
English banker; 1772-1823) very frankly disclaimed credit for 
its authorship. The doctrine was first enunciated in 1777 by 
Dr. James Anderson, a Scotchman. In 181 5, Reverend Thom- 
as Malthus and Sir Edward West, at about the same time and 
probably without knowledge of Anderson's tract, published 
what Ricardo referred to in 1817 as "the true doctrine of rent." 
On the other hand, "Adam Smith was of opinion that, after 
land had become property, and rent began to be paid, such 
rent made an equivalent addition to the exchangeable value 
of the produce of the soil." 

13. The doctrine of rent is a marginal utility doctrine. Its 
apparent inconsistency with the theory that value is determin- 
ed by the interaction of marginal cost and marginal utility is 
explained away by the fact that land is a gift of nature. (P) 



SECTION 23. 

Wages, 

(P) 

1. Meaning of Wages : 

In a broad sense, wages refers to all payments for human 
services. In a narrower sense, it refers only to daily or week- 
ly payments for labor. According to this second view, the 
worker by the day whether he be a highly skilled locomotive 
engineer or a mere street laborer receives wages for his serv- 
ices; the humble clerk at $40 a month and the $100,000 a year 
corporation president receive salaries ; a humble village no- 
tary public and the highly skilled lawyer or physician receives 
fees. A fourth kind of remuneration for labor or services 
might be noted, the tip. On the one hand then, remuneration 
for labor or services is divided into wages, salaries, fees, and 
tips ; on the other, the name wages is given to all payments 
for labor or services. (P) 

2. Important facts about wages: 

(a) Real wages or wages in terms of purchasing 
power are more important than money wages. 
In the United States, 1897-1911, retail prices 
rose from 25 to 40%, consequently, an income 
of $715 to $800 amounted to as much in pur- 
chasing power in 1897 as a $1000 income in 
191 1. If it be true as it probably is that the 
American standard of living has risen in the 
last 12 or 13 years, $1000 is worth less than 
$715 to $800 was in 1897, because comfort 
and happiness are matters of comparison. 
Lack of abundance means less when no one 
has abundance. In comparing wages in dif- 
ferent countries, and at different times, regard 
should be had for changes in the purchasing 



WAGES 93 

power of money, and for differences in stand- 
ards of decency, comfort and happiness. 

(b) Comparisons of wages should include the factor 

of regularity of employment. 

(c) Advantages or disadvantages of climate, of 

natural or social environment may also well 
enter into comparisons of wages. Many a 
family might prefer $150 a month in Minne- 
apolis to $200 a month in a bleak city like 
Butte, Montana for example. 

(d) Still other qualitative factors are worthy of con- 

sideration. Is a particular kind of work clean, 
is it interesting, does it afford wholesome de- 
velopment of any kind, does it promise pro- 
motion, is it unduly fatiguing, is it dangerous 
to health or life? 

(e) Low priced labor is not necessarily cheap nor 

high priced labor dear. 

(f) The community's welfare should be taken into 

account in estimating the cost of labor. The 
poor citizenship of a worker who toils much 
for little pay may make him dear from the 
social point of view. Industrially cheap labor 
may be socially dear labor. 

(g) Wages move up and down more slowly than 

other prices, and in the case of fees and tips 
and to a less extent of salaries, custom is 
decidedly influential. (P) 



SECTION 23. Continued. 



Ely. Ch. XXII. 

The demand for labor; 

(a) need of it, 

(b) effectiveness of labor, as compared with that 

of land or capital, 

(c) its cost as compared with the cost of land or 

capital. 
Effects on labor of new machinery? 

(a) attitude of labor toward, (there were machinery 

riots in Germany in the 17th century), 

(b) the argument of increase in real wages. 

(note that the given worker consumes some 
things besides his own product, also that 
some workers consume none of their own 
product.) 
The supply of labor: 

(a) perishable character of labor. 

(b) human liberty is sold when labor is sold, 

(c) relative immobility of labor, 

(d) composition of the population, 

(e) legal restrictions and custom, 

(f) physical, mental, and moral character of labor, 

(i) public activities that tend to promote 
labor efficiency. 
Supply of labor and the food supply: 

(a) doctrine of Malthus, 

(b) food and population in India. 

(c) English and continental population. 

(it is undoubted, however, that the early figures 
are hardly reliable.) 
The Subsistence or Iron Law of Wages: (in line 5, p. 377 
of Text, substitute for higher wages, lower wages). 
(a) The Socialist and Single Tax difficulty in con- 



WAGES 95 

nection with the Subsistence Theory, 

(b) the poor law of England and the subsistence 

theory, 

(c) what Ricardo meant by minimum of subsist- 

ence, 

(d) effect of free opportunity upon the growth of 

population, the case of the immigrant. 

8. The Wages Fund Theory : 

Although he did not use the phrase, Adam Smith gave 
expression to a wages fund theory, when he said that the de- 
mand for wage-earners could increase only in proportion to 
the increase of the funds destined for the payment of wages. 
could increase only with the increase of the revenue and 
stock of the country. As John Stuart Mill put it : "Wages de- 
pend on the proportion between the number of the laboring 
population and the capital or other funds devoted to the pur- 
chase of labor. ... If wages are higher at one time or place 
than at another, if the subsistence and comfort of the class of 
hired laborers are more ample, it is for no other reason than 
because capital bears a greater proportion to population. . . . 
"Capital devoted (available for) to the purchase of labor" di- 
vided by the number of laborers gives the general rate of 
wages, according to this theory. (P) 

9. How wages tend to be determined : 

Neither the Iron Law nor the Wages Fiuid theory explains 
wages satisfactorily, but there is half truth in each of them. 
Interpreting Subsistence as meaning standard of living, as did 
Ricardo, it is clear that subsistence enters unmistakably into 
the determination of wages. People resist with all force pos- 
sible any reduction of their standard, and where differeijt 
standards come into competition, the lower standard usually 
if not always prevails. It is perfectly true as some of the 
critics of the standard of living theory have pointed out, that 
a high standard of living is the result of high wages, but on 
the other hand by stimulating the worker to desire a higher 
standard he may be made so dissatisfied with his condition 
that through organization, and in other ways he will seek to 



96 WAGES 

raise his wages. Besides, when the standard is once estab- 
Hshed it operates to resist any permanent reduction of wages. 

The Wages Fund Theory assumes that wages are paid out 
of capital, whereas they are only advanced out of capital, 
which recoups itself out of the product of labor. The element 
of truth in the Wages Fund theory lies in the fact that there 
is an upper limit to wages, roughly determined by the work- 
er's productivity. Capital cannot afiford permanently to ad- 
vance in wages more than the value of the worker's contribu- 
tion to production. 

Some economists declare that wages are determined by the 
product of the marginal laborer, whom they define as the one 
whom the entrepreneur can just afford to employ, or the one 
whose labor at the margin of cultivation is interchangeable 
with capital. The marginal laborer is he whose product just 
equals his cost or according to others just exceeds it. They 
define marginal product with reference to cost, and then try 
to explain cost, wages in this case, by marginal product. 
Furthermore, the interchangeability of labor and capital de- 
pends not alone upon efficiency, but also upon cost. 

What value the laborer contributes in production can be 
determined only by subtracting from the product what must 
necessarily be paid to, or credited to, the other factors, hence 
the laborer's productivity is a variable quantity, just as his 
standard of living is somewhat variable and flexible. Wages 
tend to be determined through bargaining, between an upper 
limit, the productivity of the worker, and a lower limit, his 
standard of living. (P) 
lo. Mobility of labor: 

(a) from occupation to occupation, from industry to 

industry, 

(b) from worker to entrepreneur, 

(i)eflfect of concentration in business (not 
mentioned in text at this point), 
(2) the passing of free land. 



WAGES 97 

11. Influences directing one in a choice of occupation: 

(a) chance, 

(b) personal favor or influence, 

(c) training required, 

(d) the character of different occupations, 

(e) real or supposed adaptability, 

(f) social standing of different occupations. 

12. Bargaining power of employer and of worker: 

(a) difference in knowledge, 

(b) difference in bargaining skill, 

(c) difference in necessity. 

13. To the student: 

Hand in to the instructor a list of the qualifications 
that you deem essential in an applicant for some posi- 
tion or positions that you may select for this exer- 
cise ; also a list of the disqualifications that you think 
that you have noticed in someone engaged in eco- 
nomic activity. 



SECTION 24. 



Labor Problems. 

(P) 

The phrase demand and supply unanalyzed and unexplained 
is so misleading that the student is warned against its use in 
explanation of value. (P) 
I. Wages and labor unions. 

Wages are not fixed by rigid laws. Their lower limit, 
standard of living, shows some elasticity; their upper limit, 
productivity of the laborer, is often very elastic, because it 
depends not only upon the efficiency of labor, but upon what 
must be paid for land, and for capital both in the form of 
pure interest and of profits. All of the factors working to- 
gether produce a joint product. The wages movement is an 
efifort to secure a larger and at least a fair share for labor, 
of this joint product. What is fair? Should wages rise and 
fall with profits, or with the cost of living, or should they rise 
with the progress of civilization, or at the expense of any or 
all other factors of production? The wage question is not 
simple. An average stove molder, for example, may have 
turned out in 1880 x castings a day, in 1890 he may have 
turned out x-|-a castings, but their value might have been 
less than that of the x castings ten years before, and besides, 
he might in, 1890 have used more expensive and more efBcient 
capital. Wages may be gaged with reference to cost of liv- 
ing, to quantity of product, or to value of product. (P) 



SECTION 24 continued 

Ely. ch. XXIII 

2. Types of labor organizations: 

(a) trade, 

(b) industrial, 

(c) mixed labor union. 

3. Harmony in the labor ranks. Jurisdiction disputes. 

4. Justification of labor unions: 

(a) collective bargaining, 

(b) standard of living, 

(c) regulation of numbers, 

(d) education, hence increased productivity, 

(e) fraternal activities (see Text p. 394), 

(f ) the labor union a school of citizenship. (P) 

5. Methods and policies of labor unions : 

(a) apprenticeship ; 

(b) the closed shop policy, (open, honest, efficient 

union, fair strike, fair methods), 

(c) regulation of output ; 

(i) hours, 

(2) wages, (piece work), 

(3) overtime; 

(d) the "go easy" policy; 

(e) the strike ; 

(1) the present day as contrasted with the 

old strike, 

(2) disadvantages of the strike, 
.(3) responsibility for the strike, 

6. Employers' associations: 

(a) purposes, 

(b) ■ three types ; 

(i) cooperate with unions. 



100 LABOR PROBLEMS 

(2) temperate, but refuse to recognize col- 

lective bargaining, 

(3) belligerent. 

7. Collective bargaining versus arbitration. 

8. Efficiency of voluntary arbitration. 

9. Compulsory Investigation as in Canada. 

10. Compulsory Arbitration in New Zealand. 

11. Wage boards in Victoria and South Australia, and wage 
boards for sweated industries in Great Britain. 

12. Labor troubles in quasi-public industries. 

13. Profit sharing: 

(a) purpose, 

(b) three methods of, 

(c) objections to, 

(i) union attitude, 

(2) higher wages preferred, 

(3) paternalistic or philanthropic. 

14. The despotic principle in politics, religion, the family, in 
industry. 

15. Voluntary cooperation: 

(a) distributive or consumers' cooperation, 

(b) cooperative credit, 

(c) cooperative marketing, 

(d) producers' cooperation. (Text 410-11), 

(e) social value of, 

(f) as a solution of the wage problem, 

(g) trade union progress, until the workers hire the 

entrepreneur and his capital, 
(h) greater cooperation between employer and em- 
ploye. 

16. The wage-earner, a more abundant life for him: 

(a) greater productivity through more efficient edu- 

cation ; 

(b) prevention of excessive corporation profits, 

thereby reducing the worker's taxes, or the 
cost of some of his light, street car fare, or 
water for example, or enabling the city to 



LABOR PROBLEMS loi 

provide more education or more means of 
wholesome recreation, as public parks, band 
concerts, opportunities for athletic work, and 
substitutes for the saloon and the public 
dance hall; 

(c) training in spending, 

(d) enforcement of sanitary conditions of working 

and of living. 
The worker should have an opportunity to be 
more than an instrument of production. It 
should be possible for him or her to be a 
wholesome human being for at least a part of 
each day. He and she should have time, 
inclination, and opportunity for physical, in- 
tellectual, and moral improvement, for taking 
part in and helping to make and maintain 
healthy family, social, and civic life. (P) 



SECTION 25. 

Interest. 
Ely. Ch. XXIV, 

1. Interest is what is paid for the use of capital or what may 
be attributed to the services of capital. (P) 

2. Loan interest, imputed interest. 

3. What kind of interest was usury? 

4. Medieval justification of usury: 

(a) fine, 

(b) loss of possible gains. 

5. Socialistic attitude toward interest. 

6. Explanations of interest: 

(a) the Use theory. 

(b) the Productivity theory. 

Capital makes possible the production of more 
utilities, otherwise unproducible utilities, bet- 
ter utilities, or utilities at less cost, either 
total cost, or cost of labor or of land. (P) 

The productivity theory explains why interest 
can be paid. 
(e) the Abstinence theory, 

Interest is paid for the abstinence endured by 
the lender or the investor. (P) 
(d) the Exchange theory. 

Capital or future goods (from the point of 
view of present consumption) under wise, effi- 
cient management ripen into present goods, 
and since present goods are more valuable 
than future goods, there arises a diiiference 
which is interest. (P) 
When one foregoes present consumption in order 
to lend or invest, he exchanges present for 
future sroods or for a claim to future gfoods. 



INTEREST 103 

The exchange theory may be said to include 
the abstinence theory. The exchange theory 
explains why interest must be paid, to the 
marginal saver. (P) 

7. Investments of capital: 

(a) institutions to facilitate investments; 

(b) investment of corporation surpluses ; 

(i) the "maintenance" evil. 

Consider this argument against a re- 
duction of railway rates : "We are 
paying a dividend of only 6% ; most 
of our profits are going into exten- 
sions and improvements." 

8. The importance of replacement of capital. 

9. Shifting of capital from one form to another, or from place 
to place. 

10. Durability of capital goods: fixed and circulating capital. 

11. Free and specialized capital. 

What determines the value of specialized capital when once 
definitely invested? 

12. Differences between land and capital: source, question of 
normal value, durability. 

13. Recall exception taken in an earlier part of this syllabus 
to the Text distinction between capital and consumption 
goods. 

To make a distinction in economics on the basis of money 
income or any other money factor but confuses economic 
processes. If organized society owned all instruments oT 
production and no money incomes were received for their 
services, such instruments of production would still be capi- 
tal, for they would still be the concrete results of past pro- 
duction used for further production. See Section 9, question 
8 of this Syllabus. 

14. The Rate of Interest. 

The rate of interest depends upon interaction between the 
utility of capital, or its serviceability, and upon the difficulty 
•of saving. (P) 



104 INTEREST 

15. Pure interest. 

Gross interest : 

(a) supervision, 

(b) risk. 

16. Usury laws: 

(a) theory and purpose. 

17. Average rates of interest charged and paid by banks in 
the United States in 1910: on time loans 7.05 (Mutual Sav- 
ings Banks 5.62; Private Banks 8.03) ; on demand loans 6.87 
(Mutual Savings Banks 5.45 ; Private Banks 8.02) ; on sav- 
ings deposits 3.68; on demand certificates 3.18; on time de- 
posits 3.79. 

(Report Comptroller of Currency 1910). 

Bonds of ten different railroads advertised, July 191 1, at 
prices to yield from 4.05% to 4.74%; a manufacture bond to 
yield 5.37% ; Real estate mortgage bonds yield 6%. (P) 



SECTION 26. 

Profits. 
Ely, Ch. XXV. 

1. Definition of profits. 

2. Elements of profits: 

(a) entrepreneur's wages. 

It might be suggested that when a gentleman 
farmer, for example, turns over all his man- 
agerial work to a superintendent, the gentle- 
man farmer becomes a capitalist only. At 
least he ceases to be the active head of the 
farm. (P) 

(b) gains of risk or speculative gains, 

Page 443 of Text, 6th line from bottom, change 
economic to business. 

Economic life is by no means all business. 
There was economic life in the home economy 
stage and there is in its survivals today. (P)- 

Does the pursuit of money profits under com- 
petition guide business into such channels 
that human wants are best satisfied? luxuries, 
harmful utilities. It might be added that pro- 
ducers are able with tawdry and degrading 
wares to debauch the tastes and inclinations 
of some consumers. (P) 

(c) gains of chance, 

(d) gains of bargaining, 

(e) monopoly profits, 

(f) good will profits. 

It may be suggested that there is too much ab- 
solutism in the Text book statement p. 447 
that "Good will profits are to be attributed 
rather to the imperfect workings of competi- 



io6 PROFITS 

tion, to the economic inertia and friction 
which result from the fact that buyers are 
guided to a very large extent by custom 
and habit rather than by conscious choice." 
Good will profits may arise from the avoid- 
ance of certain selling expenses as a re- 
sult of the fact that the seller's reputation 

i brings customers to him. F"or example, 

many well advertised trade marks make 
it unnecessary for the manufacturer to al- 
low the retailer more than a very narrow 
margin of profit. Now, if the manu- 
facturer saves more in profits to the retailer 
than he pays out for advertising, the good 
will established and made known by his trade 
mark brings him in an additional good will 
profit. (P) 

3. Omit fine print in text, 448-56. 

References: omit Hawley: Enterprise and the Productive 

Process. 



SECTION 27. 

Necessity of State Activity. 
Ely. Ch. XXVI. 

1. Meaning of State or of Government. 

2. Preference for State over Governmental Activity. 

From the point of view of women is there such a thing as 
a cooperative state in this country? 

Governor Wilson had enacted in New Jersey recently a law 
providing for popular appointment of delegates to presi- 
dential nominating conventions. Does this suggest anything 
to you as to the cooperative state idea in the United States? 

(P) 

Explam the statement that "liberty invariably increases 
taxes." 

3. Production has become social. 

4. Fundamental institutions established by the State : 
property, contract, inheritance. 

5. Natural rights. 

(a) property etc. as natural rights, 

(b) the basis of human rights. 

6. The Social value and individual justice of Trade Marks. 
Patents and Copyrights. 

7. "Public property operates to diffuse wealth." 

8. Public regulation of inheritance and of contract. 

Note that again the Text, p. 467, line 22 uses economic as 
if all economics had to do with production for, or sale in a 
market. Guard against the suggestion that economics has to 
do only with "business," with markets, and with dollars and 
cents, an idea that precludes economics from the time when 
the household was self-sufficient, and an idea that is incon- 
sistent with the very meaning of economics. The English 
Classical School taught a commercial economics. From the 
terminology connected with that Commercial idea, many econ- 



io8 NECESSITY OF STATE ACTIVITY 

omists of a much broader outlook than that of the Classical 
Economists have been apparently unable to entirely free 
themselves. (P) , 

9. Public regulation to protect: 

(a) the honest, conscientious producer, 

(b) the worker, 

(c) the consumer, 

(d) the investor. (P) 

10. Public regulation, experiment, and instruction to conserve 

and direct the use of: 

(a) land (U. S. Dept. of Agriculture and Colleges 

and Schools of Agriculture for example), 

(b) forests, 

(c) mines, 

(d) waterpower, 



SECTION 28. 

Transportation. 
Ely. Ch. XXVII. 

1. Different divisions of the problem of transportation. 
After fares, 3rd line from bottom of p. 471 of Text add also 

service. 

2. The importance of transportation to business, and to in- 
dividual, and also to social development. 

3. Waterways to regulate railroad rates and service?' 

4. Railway competition: 

(a) success of, 

(b) public and private competition, 

(c) pools and the Interstate Commerce Act, 

(d) rate agreements and the Sherman Act, 

(e) consolidations and the Northern Securities case, 

(f) extent and means of consolidation, 

(g) nullification of speed advantages, of service ad- 

vantages, 
(h) checking of rates by necessity of some pros- 
perity for producers along a railway line. 

5. The movement of rates. 

6. Measurement of reasonableness of railroad rates with ref- 

erence to: 

(The figures given on p. 477 of the Text establish 
nothing as to the reasonableness of railway earnings 
or of railway rates, for dividends are great or small only 
in comparison with capital invested.) 

(a) cost of the physical property, 

(b) cost of reproducing the physical property, 

(c) value of the stocks and bonds. 

7. Measure of specific rates : 

(a) difficulties of the cost principle, 

(i) apportionment of maintenance of way 



no TRANSPORTATION 

by the Wisconsin R. R. Commis- 
sion : 
natural depreciation : gross earnings, 
depreciation from movement of trains : 
train mileage. 

(b) distance tariffs, 

(c) group rates, 

(d) basing-point system, 

(e) export and import rates, 

(f) what the traffic will bear, (P) 

(g) effect of terminal' charges on distance rates. 
8. Arguments for private railroads; for public railroads, 
g. Government regulation: 

(a) difference between the Massachusetts and Wis- 

consin types of Commissions; 

(b) two constitutional difficulties confronting State 

regulation ; 

(c) Federal regulation ; 

(i) rates, service, discriminations, ac- 
counts, pools, safety devices. 



SECTION 29. 

Insurance. 
Ely.Ch. XXVIII. 

(Add to references: Graham, W. J.: Romance of Life In- 
surance, also "Guarantee of Deposits and Modern Economic 
Life," Bankers' Magazine, Jan., igog.) 

1. Essential idea of insurance. Is insurance different from 

gambling? 

2. Productivity of insurance: 

(a) feeling of security, 

(b) relief of distress, 

(c) promotion of business, 

(d) slightly off-setting losses. 

3. Moral value of insurance. (P) 

4. The law of probability in insurance. 

5. Origin and Development of Insurance: 

(a) loans on bottomry, 13 and 14 centuries, 

(b) the Fire Office, 1680, 

(c) the Old Equitable, 1762, 

(d) in America, pre-revolutionary days, 

(e) old line life in the 70's, assessment companies, 

old line and squandering of surpluses. 

6. Insurance organization: 

stock, mutual, associations of insurers. 

7. Kinds of premiums, and policies, Text 489, 491 : 

(a) assessment, 

(b) level premiums, 

(i) ordinary life, 

(2) ten or etc. limited payments, 

(c) participating or non-participating policies, 

(d) endowment policies. Text 492. 

(e) term insurance. 



112 INSURANCE 

8. Insurance terms: 

(a) life tables. 

(b) reserve, 

(c) surplus, from 

(i) fewer deaths, 

(2) greater interest returns, 

(3) smaller "load" or expenses than was 

calculated, 

(4) lapsed policies. 

9. Industrial Insurance : 

Character; objections to; Massachusetts savings 
bank insurance. 

10. National versus State regulation. 

11. Inquire among your friends and acquaintances and mem- 
bers of your family as to the kinds of insurance both personal 
and business that they carry. Ask them why they carry the 
kinds that they do carry. 



SECTION 30. 

Activities of Municipalities. 
Ely.Ch. XXIX 

1. The Text, middle of p. 496, states that "municipal func- 
tions are to a much greater degree economic than the func- 
tions of the national government.'" 

This is difficult to understand. Probably the authors are 
here again using the term economic in the narrow sense of 
industrial or commercial. The word is so used again at the 
bottom of. the page. Notice that on page 497, the authors use 
the word commercial. 

2. Growth of urban population brings increase of industrial 
or commercial activity by cities. 

3. The affect upon the citizen of franchise opportunities. 

4. Contrast the functions of the city today with those of the 
city of the past. 

Is there any connection between the modern city as a vast 
household and the demand for votes for women? Can the 
Avoman of today do as effective housekeeping without a vote 
as her predecessor did? (See "Division of Labour and the 
Ballot," Westminster Review, Oct., 1910.) 

5. Municipal functions: 

(a) protective, including sanitation and public 

health ; 

(b) charities and corrections ; 

(c) educational, cultural, and recreational; 

(d) commercial and developmental; 

(e) municipal monopolies. 

6. The qualities characteristic of enterprises usually under- 

taken by municipalities and most easily conducted by 
them. 

7. Competition in public utilities. 



114 ACTIVITIES OF MUNICIPALITIES 

8. Public regulation of: 

(a) rates, 

(b) service, 

(c) extension and improvements, 

(d) new stock and bond issues, 

(e) labor conditions. (P) 
Uniform accounting and publicity necessary. 

9. The New York Subway. 

The Chicago Street Railway Settlement. 

10. Arguments for municipal management: 

(a) political corruption, 

(b) improvement of public service, 

(c) increase of model employer activity, 

(d) rates determined by considerations of social 

utility. 

11. Significance of the independent vote. 

12. The question of efficiency and progress under public man- 

agement. 

13. Necessity of municipal power to grant franchises, to regu- 
late franchise grantees, and to undertake municipal manage- 
ment. 



SECTION 31. 

Socialism. . 
Ely. Ch. XXX. 

1. Socialism aims at democracy in the ownership and control 
of the land and capital used in business and industry. It may 

be said that many if not all American Socialists believe in pub- 
lic, ownership of all public utilities, and of commercial and 
industrial monopolies, and in ownership of all competitive 
enterprises by the workers in each such enterprise. For the 
platform of the American Socialist Party, see International 
Socialist Review, June, 1908. (P) 

2. Socialistic explanation of wealth creation. 

3. Socialistic criticism of the present distribution. 

They complain that while production is socialized, distribu- 
tion is not. (P) 

4. Varieties of Socialism: 

(a) Utopian, Robert Owen ; 

(b) Marxian, 

(i) evolution, 

(2) economic interpretation of history, 

(3) surplus value, 

(4) class struggle, 

(c) Fabians, Opportunist, 

Bernstein, Jaures; 

(d) Christian Socialism; 

(e) State Socialism ; 

(f) Socialists of the chair. 

5. Communism. 

6. Socialism from an extension of existing government insti- 
tutions. 

This would be State Socialism. 

7. Socialism versus Paternalism. (P) 

Recall the distinction between a repressive government and 
a cooperative state. 



ii6 SOCIALISM 

8. Socialistic indictment of the present industrial order: 

(a) competition is wasteful, 

(b) many are idle, 

(c) poor business organization, and unjust distribu- 

tion make for much unemployment, 

(d) goods are produced for sale not for use, 

(e) competition is warfare. 

9. Is the era of competition at an end : 

• "Judge Gary (head of the U. S. Steel Corporation) said re- 
cently that he believed the era of competition was at an end. 
. . . He then went on to say that there should be a govern- 
ment agency to fix prices of commodities entering into inter- 
state commerce, subject to review by the courts." He declared 
further for government supervision of the organization of 
corporations, that there should be no overcapitalization, a fair 
and reasonable profit and that returns should be based on the 
actual value of a corporation's property rather than on its stock 
valuation. (As reported by the New York Times) Colonel 
Roosevelt and Attorney General A\'ickersham have expressed 
similar views. (P) 
10. Criticisms of Socialism. 

(a) It is true that the present system breeds selfish- 

ness and inhumanity, but on the other hand 
to have successful socialism we must have 
such a general condition of intelligence, hon- 
esty, and fraternalism as we seem to be ap- 
proaching but slowly. A much greater intel- 
ligence and a much more widespread social- 
ized consciousness must be realized before 
socialism can hope to be successful. Whether 
socialism will be the outcome of our present 
social and industrial evolution is, however, 
a question that only the over-confident will 
attempt to answer. However, Socialism gains 
ground wherever it keeps its ultimate goal in 
the background and advocates reform. (P) 

(b) Energy and thrift encouraged by the present 



SOCIALISM 117 

system ; The writer cannot see that Dr. Ely 
establishes a great deal by his emphasis of the 
premium put upon energy and thrift by the 
present system (p. 522), especially in view of 
his statement on p. 513 that the socialists wish 
to make universal application of the com- 
mand "If a man will not work, neither let 
him eat." The socialist may contend that his 
system would put a bigger premium upon 
energy and capacity. It is probable that Dr. 
Ely's thrift argument has considerable valid- 
ity, but while thrift is to be highly commend- 
ed, it. cannot be forgotten that it too often 
degenerates into selfish grasping, (see Ely, 

. 542). (P) 

(c) Again the "If a man will not work, neither let 

him eat" statement detracts much from the 
author's contention that the present system 
develops character by imposing personal re- 
sponsibility. The socialist has much ground 
for his contention on the contrary that condi- 
tions of competition are not fair. 

(d) The free enterprise argument is good, but the 

socialist retorts by showing that concentra- 
tion in business is diminishing the range of 
that freedom. 

(e) The liberty argument that under socialism there 

would be simply the public sphere of employ- 
ment applies only to State Socialism. 

(f) The Marxian doctrine of class struggle is now 

discredited by many socialists, e. g., Bernstein 
and Jaures. The German elections of 1907 
very much discredited it. 

(g) There is little practical difference between the 

friend of social reform and of public regula- 
tion in the interest of reform, and the social- 
ist with practical ideas, the opportunist; the 



ii8 



SOCIALISM 



only difference is that the socialist thinks that 
he sees the outcome of social evolution, while 
the reformer is content, if he be wise, to make 
progress without attempting prophecy. (P) 

11. Progress of Socialism: 

(a) in Germany, 

(b) in France, 

(c) in Belgium, 

(d) in England. 

(e) in the United States. 

In 1909, the Socialists elected a Congress- 
man, Victor Berger, of Milwaukee. At the 
same election they got control of the city 
of Milwaukee. In 1910, owing, however, to 
circumstances rather favorable to them, they 
very nearly secured the office of mayor of 
Minneapolis. 

12. The value of Socialistic agitation to the work of social 

reform. 

13. Anarchism: its philosophy, idealism, impracticability; dif- 
fers from socialism ; differences among Anarchists. 

14. Safety afforded by socialistic agitation: 

Many fear socialistic agitation, and while it is true that 
occasionally a student of socialism becomes fanatical through 
brooding upon the undoubted wrongs of society, on the other 
hand thousands find a safety valve for their pent up indigna- 
tion against the wrongs that they both see and sometimes 
fancy perhaps, and besides, they are restrained by the hope 
that Socialism holds out to them. Furthermore, their study 
and their discussions undoubtedly have some considerable 
affect upon their intellectual capacity. While the agitation 
makes sometimes for crime, it is probably decidedly more 
effective in promoting wideawake, thinking, alert, active citi- 
zenship. 



SECTION 32. 

Agricultural Problems. 
Ely. Ch. XXXI. 

1. Size of American farms. 

2. The most profitable size depends upon : 

(a) value of land, 

(b) kind of labor obtainable, 

(c) amount of capital available, 

(d) markets and transportation, 

(e) managing- skill of the farmer. 

3. Relation of intensive farming to size of holdings and to 
diffusion of ownership. 

4. The English Small Holdings Act of 1892. 

5. The social value of a few large farms. 

6. Increase of farm tenancy, favorable or unfavorable. Rela- 
tion of to rising land values. 

7. Farm labor: 

(a) real wages, 

(b) efifect of improved machinery, 

(c) hours and unemployment, 

(d) effect of the migratory laborer upon advance- 

ment of the farm laborer. 

8. Agricultural credit: 

(a) the importance of the farm mortgage in the 

United States, 

(b) European credit agencies for the farmer, 

(c) the social value of agricultural credit agencies, 

(d) the idea urged in the Text, bottom of p. 539 and 

on p. 540 is evidently that while credit asso- 
ciations should not be transplanted so to 
speak, an effort should be made to generate 
the spirit that makes them a success, and will 
in time perhaps give rise to them. (P) 



I20 AGRICULTURAL PROBLEMS 

9. Tenancy versus Encumbered Ownership : 

(a) on the frontier, 

(b) when land is very high and especially when it 

is not increasing" in value, 

(c) social and moral advantages of ownership, 

(d) occasional adverse results of ownership, 

(e) difficulties of tenant farming calling for State 

inter\'ention, 

(f) ownership can be encouraged by State aid in 

the form of instruction in agriculture, and by 
the inculcation in all education for the coun- 
try boy and girl, of the spirit of enterprise and 
of that cooperation especially that will facili- 
tate intensive agriculture and farm owner- 
ship. (P) 

10. Marketing of farm products: 

(a) advantages and disadvantages of a world mar- 

ket. 

(b) railway rates and concentration of manufactures 

in large centers, 

(c) the distributive mechanism between farmer and 

consumer, 

(i) the commission merchant, staple 
products, perishable products. 

(2) the advantages of coo])erative market- 

ing, also of the intermediate trader, 

(3) oppression from the monopoly buyer 

in collusion with railroads. 

11. The effects of speculation: 

(a) charges against speculation, 

(b) the counter argument, 

(c) the price equalizing influence of speculation. 
A "future" is a contract for future delivery. 

To "sell short" is to sell for future delivery something that 
you neither have nor have coming to you. (P) 

Speculation has undoubtedly its favorable aspects, but it 
might be objected that the Text makes too strong a statement 



AGRICULTURAL PROBLEMS i2i 

in its favor. In January, 1906, the Southern Cotton Growers' 
Association declared that the New York Cotton Exchange by 
its speculating depressed the price of cotton below its legiti- 
mate value and robbed the cotton growers of millions of dol- 
lars. President Jordan of their Association said : "The great- 
est evil with which ^southern cotton growers and manufac- 
turers of American cotton have had -to contend has been spec- 
ulation in cotton futures." In 1907, an economist from a 
southern university told the writer that northern cotton manu- 
facturers use the Cotton Exchange to depress the price of raw 
cotton. "The constant trading in wheat in Chicago, and other 
speculative centers, whereby the entire crop of the country is 
sold over and over again during the year, is a very serious 
detriment. . . . An important matter in the regulation of the 
cost of flour would certainly be the regulation of speculation 
in the great speculative centers." 

(From testimony by Mr. Richard J. Rothwell, see Massa- 
chusetts Cost of Living Report 1910, p. 132.) (P) 

Inquire among farmers whom you know or meet as to their 
opinion of speculation in farm products, also among manu- 
facturers of flour, (P) 

12. Improvement of farming people through education and 
organization. 

The National Grange. 

13. Agricultural Conditions shown by preliminary reports of 
the 1910 Census: (P) 

See in particular a very excellent article by Professor E. V. 
D. Robinson, "Changes in Minnesota Agriculture," also "Farm 
Tenancy in Iowa," by Professor B. H. Hibbard, also "Large- 
Scale and Small-Scale Farming," by Professor T. N. Carver, 
also articles by Professors J. G. Thompson and John L. Coul- 
ter. 

All in Publications of the American Statistical Association, 
March, 191 1. - 

(a) farm tenancy, 1910 as compared with 1900; the 
following increases, Illinois 39% to 41%, 
Iowa 35 to 38, Indiana, 29 to 30, Minnesota, 



AGRICULTURAL PROBLEMS 

17 to 21, Wisconsin and Michigan no in- 
crease, New England a falling off. 
The average land values per acre in the several 
states were : Illinois $95, Iowa $83, Indiana 
$62, Minnesota ^2)7) Michigan $32, Wisconsin 

?43- 
In Minnesota, land increased in value 82%. Was 
this increase as great as the figure indicates? 

(b) 1910, increase of farm managers; in Illinois 

22% ; in Minnesota tenants and farmers to- 
gether increased from 18% to 22%. However, 
in Minnestoa in the decade many bonanza 
farms in the Northwestern quarter were brok- 
en up. What is the significance of this? 

The increase of managers in the North Central 
States seems to have been about 7-{-%. 

From the broad social point of view, it is de- 
sirable that the graduate of the college of 
agriculture should become an independent 
farmer rather than a hired manager. 

(c) WHiy an increase of farm tenancy? 

(i) Prosperity for city people has made 
them purchasers of farms, hence 
either more tenant farming or farm- 
ing by hired managers, hence also 
higher land values, 

(2) Increasing cost of labor may promote 

breaking up of very large farms, 

(3) Lack of adaptability to new conditions 

"They stick to their old methods 
and their accustomed crops." (Hib- 
bard). 
(4) Lack of capital for initial development. 
Dr. Hibbard points out that the 
average sized farm in Iowa at the 
average price would cost $16,000. 
A beginner could borrow not over 



AGRICULTURAL PROBLEMS .123 

40% to 50% of this on a mortgage. 
Besides, he would need a thousand 
or two more for equipment. 

(5) For Iowa land, speculation has been 

emphasized. There, while "Iowa is 
counted a good farming state, and 
Iowa farmers are held up as a type of 
prosperity; yet all told, the land is 
slipping out of their hands." (Hib- 
bard). 

(6) The higher value of land has been 

emphasized as the most constant 

factor. 
14. What has the kind of cultivation, to do with the size of 
farms? What has the growth of capital equipment for farm- 
ing to do with it? 



SECTION 33. 

Public Expenditures, 
Ely. Ch. XXXII. 

1. The scope of public expenditures. 

2. Public finance is concerned with the satisfaction of wants 
and is therefore a part of economics. 

3. Significance of increasing public expenditures. One item 
of this increase to be deplored. War. 

4. Do public expenditures show social maladjustment? 
(Public expenditures and health, see Westminster Review, 

June 1910. pp. 63911.) 

Large expenditures for charity and penal institutions versus 
adequate expenditures for education, recreation, reform, and 
justice. Large costs for trying industrial accident cases ver- 
sus adequate provision for prevention and perhaps state sup- 
port of workers' insurance. (P) 

5. Criticism of the idea that public revenues are gauged ac- 
cording to expenditures, while private expenditures are regu- 
lated according to income. 

4. The argument that land rent might not be sufficient for 
public expenditures. The. figures for Boston show that the 
total taxes are equal to only one-half the ground rent. 

See Fillebrown. C. B.: The A. B. C. of Taxation, p. 51. 

5. Amount that the State should spend: 

(a) general wealth of the people and how distrib- 

uted, 

(b) distribution of the burden of taxes, 

(c) the greater expenditures of the modern state 

(subtracting military and naval expenditures) 
represent greater service, 

(d) economy versus parsimony ; 

(i) selfishness (sectionalism or depart- 
mentalism), 



PUBLIC EXPENDITURES 



J 25 



(2) evils of a treasury surplus, 

(3) an administration should not be judged 

by the amount of its expenditures. 

6. Development of expenditures and their order of ap- 

pearance : 

(a) external security, 

(b) internal security, 

(c) promotion of material interests, 

(d) benevolence, 

(e) education, 

(f) labor, 

(g) regulation of private economies. (P) 
(h) recreation and public health. (P) 

(in England, however, the public health move- 
ment proceeded with the movement for fac- 
tory legislation). 

7. Regularity of expenditures: 

Conflict of policy between administrative and legislative 
authorities with respect to budgets. 

Note contention for a University half mill tax in this con- 
nection. 

8. Terminology of public finance: 

(a) expenditure in a narrow sense versus invest- 

ment. If both are wise, the difference is mere- 
ly a time difference, 

(b) investments by cities and their debt limits, 

(c) "outlays." 

9. Expenditures in a democratic as contrasted with a mon- 

archic country. 



SECTION 34. 

Public Revenues from Loans and Government Ownership, 
Ely. Ch. XXXIII. 

1. Deficit financiering : 

(a) England, France, the United States, 

(b) two main causes : wars and public works, 

(c) social advantage of debt rather than taxation for 

very heavy, extraordinary expenditures. Note, 
however, examples of spreading such an ex- 
penditure over several years, Text, bottom 
p. 571 and top of p. 572. ' 

(d) is public debt necessarily proof of national pov- 

erty? Depends upon who owns the bonds and 
what is being done or has been done with the 
capital borrowed. 

(e) criticism of rigid debt limitations. 

2. The Public Domain: 

(a) meaning of, 

(b) revenue from in medieval times ; 

(c) the democratic attitude toward private property 

subject to taxation as a part of a State's patri- 
mony; 

(d) United States land policy; 

(i) early policy, 

(2) credit system, 

(3) preemption, 

(4) Homestead Act, 

(5) grants for education and development; 

(e) forest lands; 

(i) general importance of, 
(2) failure from social point of view of 
unregulated private use of, 



PUBLIC REVENUES 127 

(3) the evil of laxing forests according to 
their value; 

(f ) mineral lands ; 

(i) conflict between our land policy and 

certain needs of industry, 
(2) the leasing system ; 

(g) success of our land policy; 

(h) the desirable policy with respect to agricultural, 
forest and mineral lands, 

3. The Single Tax: meaning of, difference between land 
nationalization and land municipalization. 

The Single Tax philosophy makes a strong appeal to many 
friends of the idea of equal opportunity. It emphasizes the 
natural character of land. It rests upon the two principles, 
(i) of equal right to the use of land, and (2) of common right 
to the rent of land. Besides, "The single tax theory regards all 
special privilege value in railroad shares, telegraph and tele- 
phone, gas and electric stocks as 'land' . . . subject to taxa- 
tion, with all other land values." The writer cannot find in 
the writings of single taxes of today any disposition to tax 
away past rents. It is true that some declare for a total ab- 
sorption of present and future rent, but some on the other 
hand would take only so much as is needed to defray public 
expenditures, about 50%, they figure. It should be pointed 
out that the single tax idea emphasizes the great need of care- 
ful public regulation of the use of land. This fact is enforced 
by the way in which many fine residences are crowded togeth- 
er in the Single Tax City of Vancouver. 

For a brief and excellent exposition of the Single Tax, see 
Fillebrown, C. B., The A. B. C. of Taxation, especially Ch. 
XII. II pp. see also p. 51. (P) 

4. Public Enterprises: 

Is the text right? Are we not concerned with gov- 
ernment post offices, navy yards, etc., which are cer- 
tainly sources of utility income? (P) 
(a) sumptuary monopolies; Swiss alcohol, Japan 



J28 PUBLIC REVENUES 

opium in Formosa ; 
(b_) fiscal monopolies : France, Japan, Prussia, Aus- 
tria, Italy, Spain, 

(c) natural monopolies undertaken primarily for 

regulation : water, gas, electricity, postal sys- 
tems, telegraphs, telephones, railroads, 

(d) enterprises for the public good : educational, 

roads, canals, savings banks, pawnshops, park 

systems,* state support of workers' insurance, 

* The Minneapolis Park Board not only provides 

parks and drives, but it does a thriving business in its 

various refectories and boat houses. (P) 

5. Public Enterprises, continued: 

(a) faulty book-keeping; depreciation, interest on 

capital invested, 

(b) principles governing prices; cost, gratuity, rev- 

enue : 

(i) is the utility wholesome or harmful, 

(2) who enjoys the utility, 

(3) affect of gratuitous service on cost of 

producing it, 

(4) effect of gratuities, on wages, 

(5) Dr. Ely's gratuity principle, 

(6) profit becomes secondary to questions 

of public policy. 

(7) more scientific cost keeping and a 

more satisfactory theory of public 
charges are desirable. 



SECTION 35. 

Public Revenues: Derivative Revenues. 

Ely. Ch. XXXIV. 
Definitions : 

(a) public prices, (tobacco, e. g., in France) 

(b) fees, (student fees) 

(c) special assessments (water or sewer) 

(d) taxes. 
Fees : 

(a) in a democratic state, 

(b) restrictive value of, 

(c) relation of to politics, 

(d) relation of to justice. 
Special Assessments: 

(a) value of to prevent fraud, to promote progress, 

(b) occasional evil promoted by, 

(c) levied according to the benefit principle of taxa- 

tion, 

(d) Note in Text p. 610 "Special assessments should 

not be levied against the will of a majority of 
the property holders subject to assessment, 
except by a two-thirds or three-fourths vote 
of the city council." A student of the writer 
asks, is this not an argument for votes for 
women property holders? 
Taxes : 

(a) importance of in public revenues; 

(b) justice in taxation ; 

(i) the general criterion is general wel- 
fare, 

* 

(2) denial of right of the state to tax, 

(3) the principle of equality and uniform- 

ity (reasonable classification and 
like treatment of all in a class), 



130 PUBLIC REVENUES 

(4) sumptuary purposes, 

(5) old taxes, 

(6) indirect taxes and fiscal expediency, 

(7) taxes for political or social ends, 

(8) the benefit theory, 
(a) limitations of, 

(9) the ability theory, 

(a) limitations of, 

(b) measurement of ability, 

1. income, 

2. outgo, 

3. property. 

5. Progressive taxation: 

(a) distinguished from proportional taxation ; 

(b) regressive (declining rate) ; 

(c) degressive (rate increases faster than value and 

toward a limit) ; 

(d) arguments against progressive taxation ; 

(a) socialistic, 

(b) prevents collection at source, 

(c) not particularly productive, 

(d) discourages accumulation of 

wealth, 

(e) arbitrary and unlimited ; 

j(e) exemptions, special taxes and expenditures to 
promote equality of opportunity, proposed in 
lieu of any single progressive tax ; 

(f) the tax criterion in the Pennsylvania constitu- 
tion of 1776. 

6. Shifting of taxes: 

(a) meaning of, 

(b) a burdensome tax may be mitigated by the good 

results of its expenditure, 
It might be objected that the Text, bottom p. 619 
discusses evasion as if it were the same thing as 
shifting. 



PUBLIC REVENUES 131 

(c) constant cost of production and shifting-, 

(d) increasing- cost of production and shifting, 

(e) diminishing cost of production and shifting. 
However, elasticity of demand and other factors 

complicate the matter of shifting. (P) 

(f) taxes on buildings shifted, 

(g) taxes on land not shifted, 

(h) a tax of so much per bushel or pound would 
change margin of cultivation. 

7. Incidence: By incidence is meant the one upon whom or 

the thing upon which the tax finally falls. 

8. Capitalization of taxes : 

(a) meaning of, 

(b) the single tax contention, 

(i) Notice that on p. 621, the Text says 
that "Prospective purchasers of land 
always take into account the taxes 
that are likely to be levied upon it, 
capitalize these and subtract their 
capitalized value from the amount 
that they would pay for the prop- 
erty if it were not liable to taxa- 
tion." 
At top of page 622, "This capitaliza- 
tion takes place only to the extent 
that the tax on land is exclusive and 
unequal, and modern taxes upon 
land are not of this nature." Are 
these statements consistent? 

(2) the present owner and single tax; 

Reply is made to the authors of the 
Text that a gradual absorption of 
enough unearned increment to de- 
fray public expenditures would re- 
lieve the present owner of the whole 



132 PUBLIC REVENUES 



burden, and that, besides, his land 
would continue to increase in value. 
The latter would not be true however 
if the owner had been hypnotized 
by a land boomer. (P) 
(3) Despite the competition argument in 
the Text, middle of p. 622, it is cer- 
tain that there are unearned incre- 
ments from land, and that on the 
other hand, however, owners lose 
on land not infrequently, owing ta 
social changes. "The statement has 
been made by a prominent postal 
official that the establishment of the 
rural free delivery system through- 
out the country, in his judgment, 
has resulted in an increase in the 
value of farms and other realty of 
approximately one billion dollars." 
(National City Bank Bulletin, July 
191 1.) Note whether the new street 
car stop rule in Minneapolis is af- 
fecting the value of business sites. 
A full discussion of the Single Tax 
would emphasize the avoidance of 
loss to the unlucky landowner as 
well as the prevention of gain by the 
lucky one. Part of the evil com- 
plained of by the single tax would 
be done away with by equal assess- 
ment of unimproved and improved 
land. (P) 
For a reply to the Text book conten- 
tion, see Fillebrown, C. B., The A. 
B. C. of Taxation, pp. 48-52. (P) 



PUBLIC REVENUES 133 

9. Diffusion of taxes. Value of certainty in taxes. 

Consider, Text, p. 622, 

"A poll tax upon laborers . . . will in our opinion, not be 
shifted, as it is likely to lower their standard of living, stimu- 
late the birth rate, and in turn (other things being equal) 
actually reduce wages." 



SECTION 36. 

Public Revenues: federal, state and local taxes. 
Ely. Ch. XXXV. 

1. Tax provisions in the federal constitution: 

(a) direct taxes, 

(b) duties, imposts, and excises, 

(c) imposts or duties on imports or exports, by 

States. 

2. Meaning of duty, custom, impost, excise. 

3. Direct versus indirect taxes : 

(a) up to 1894, capitation and land taxes, (income, 

inheritance, consumption taxes had been sus- 
tained), 

(b) income tax decision of 1894, and the economist's 

distinction, 

(c) uncertainty of the economist's distinction. 

4. The history of federal direct taxes. 

5. Customs duties: 

(a) importance of in federal revenue ; 

(b) the protective principle ; 

A protective duty either taxes the consumer or it 
does not protect. 
Who pays the tax? 

(c) American customs duties with respect to rev- 

enue ; 

(i) advantages: productivity, convenience 
of payment, cheapness of collection, 

(2) disadvantages : unreliability and un- 
certainty, variations with : prospects 
of peace or war, power of tariff lob- 
bies, prosperity and commercial 
policies of foreign nations. 



PUBLIC REVENUES 135 

(d) fiscal disadvantages : complex and cumbersome, 

unscientific, 

(e) tariff uncertainty disturbs business, (P) 

(f) influence of the tariff on politics, (P) 

(g) meaning, advantages, and disadvantages pf 

specific and of ad valorem duties ; 
(h) superiority of the revenue principle over the 
protective principle. 
Internal revenue duties : 

(a) meaning and importance of ; 

(b) disadvantages of: 

(i) regressive, 

(2) promote large scale business, (from 

some points of view this is an ad- 
vantage), 

(3) high duties encourage adulterations; 

(c) advantages ; 

(i) large revenue, 

(2) regular and dependable except for 

some falling off in times of indus- 
trial depression, 

(3) elastic, 

(4) inexpensive to collect, 

(5) little fraud or evasion, 
Taxes on transactions : 

advantages : quick productivity, evasion almost im- 
possible, inexpensive to collect; 

disadvantage : may impede business. 
Income taxes : 

(a) progressive income taxes to remedy inelasticity 

and regressivity of federal taxes, 

(b) income taxes in this country: colonial period, 

Revolutionary War to 1870 (state taxes), 
1863, 1894. 

(c) failure of state income taxes (self-assessment), 



136 PUBLIC REVENUES 

(d) German experience (low rate, greater amenabil- 

ity to government interference), 

(e) English and Italian experience, 

(f) income taxes from view point of: justice, inci- 

dence, elasticity, 

(g) from point of view of peoples' attitude toward 

it, (inquisitorial), 
(h) practical difficulty in determining net income, 
(i) conclusion regarding the income tax; a system 
combining income, capital value, and con- 
sumption as basis of taxation. 
(See on Income Taxes, Hand-book for Debaters 
published by The H. W. Wilson Co.) 
g. The Wisconsin Income Tax. (P) 

By a law of 191 1, in 1912 the personal property tax in Wis- 
consin will be supplanted by a progressive income tax. Ex- 
emptions are made with reference to marital condition, also 
with reference to number of dependents. Corporations are to 
be taxed with reference to the relation between their income 
and the assessed value of their property. For example, if the 
taxable income equals 1% or less of the assessed value of the 
property, the rate is 3^ of 1%, if the taxable income equals 
1% of the property and is less than 2%, the rate is 1%, and 
so on until a ratio of income to property is reached of 12%, 
when the rate is 6%. 

The tax is to be administered by the State Tax Commission. 
The revenue received is to be apportioned, 10% going to the 
State, 20% to the Qounty, and 70% to the town, city or village 
in which the tax is collected. 
10. Inheritance taxation: 

(a) taxation of inheritances as a means of afifecting 

the distribution of wealth, 

(b) spread of the inheritance tax, 

(c) Dr. Ely's clan argument against unregulated 

collateral inheritance, 
* (d) the Wisconsin law. 



PUBLIC REVENUES i37 

(e) look up the Minnesota law, 

(f) the New York law of 1910 provides for a maxi- 

mum exemption of only $5,000. 
What do you think of small exemptions of 
$5000 and $10000 in the cases of widows and 
of minor children? 

(g) arguments against a federal inheritance tax; 

(i) A state inheritance tax is needed to 
keep state and local taxes separate, 

(2) both federal and state governments 

should not levy the tax, and the fed- 
eral government cannot prevent the 
states from doing so, 

(3) the probate courts can be used by the 

state in levying such a tax ; 
(h) arguments for a federal inheritance tax; 

(i) a heavy state tax may be avoided, 

(2) multiple taxation should be avoided, 

(3) need of state agreement. 
II. The General Property Tax: 

(a) importance of in American public finance, 

(b) general nature of and evils of, 

(i) unjust apportionment, 

(2) realty and personalty, inequality be- 

tween, 

(3) inequality among kinds of property, 

(4) "Both investigations showed that un- 

improved real estate was ordinarily 
taxed at a higher rate than improved 
property" Text, p. 642. Much can be 
said too about underassessment of 
unimproved property as compared 
with improved. (P) 

(5) promotes dishonesty, , 

(6) the general property tax is a mixture 

of real and personal taxes ; defects 



138 ■ PUBLIC REVENUES 

in administration, double taxation; 
however, a corporation owes some- 
thing- to the taxing jurisdiction in 
which it is located, while its stock- 
holders residing in other jurisdic- 
tions owe something because of 
their ability, indicated by their 
stock, to their resident jurisdictions. 

(P) 
(7) reforms : 

(a) with respect to realty, 

(b) with respect to personalty, 

(i) habitation taxes, 
(2) business licenses. 
(See Phelan, R. V. The Financial History of Wisconsin, ch. 
on The General Property Tax.) See also "Centralized Tax Ad- 
ministration in Minnesota and Wisconsin, National Tax As- 
sociation 1907. 

12. Corporation Taxes : 

(a) incorporation fee, 

(b) franchise tax, 

(c) tax on realty, 

(d) tax on capital. 

Federal corporation tax 1909 : the annual net income in 
excess of $5000 of corporations organized for profit is taxed 
at the rate of 1% per annum by the federal government. Each 
corporation so taxed is obliged to make to the bureau of cor- 
porations a report of its business, which report is open to the 
stockholders of the corporation. (P) 

13. Business and license taxes: 

(a) superiority of over tax on stocks of goods, 

(b) defects of business taxes in our Southern States, 

(c) employed in Europe and in Canada. 

14. Poll taxes: ' 
Extent of use and defects. 



PUBLIC REVENUES 139 

15. A balanced revenue system: 

(a) federal; 

(i) excises and customs, 

(2) taxes on transactions in times of emer- 

gency, 

(3) taxes on interstate commerce. 

(b) state; 

(i) the more important corporation taxes, 

(2) some license taxes, 

(3) inheritance tax. 

(c) local; 

(i) tangible property tax, 

(2) license and business taxes, 

(3) franchise taxes. 

16. Evils of state taxation of interstate railroads and of other 

interstate business enterprises. 
Federal control : 

(a) assessment and apportionment, with state col- 

lection, 

(b) state taxes on physical property, federal on the 

business, 

(c) federal taxation only. 

The International Tax Association (the name will probably 
be changed back to the original National or to American in 
September, 191 1) is working for harmony, uniformity, justice 
and reason in state and local taxation. Those interested are 
referred to the bound volumes issued by this Association. (P) 

17. Separation of state and local sources of revenue: 

(a) state control of business of state wide scope, 
especially of public service corporations. In 
some states, state control is opposed on the 
ground that such control would, because of 
the influence of politics, injure the people. 
The writer has heard state control and taxa- 
tion of the Twin City Rapid Transit Com- 
pany opposed in Minneapolis on that ground. 
The home rule argument is also frequently 
made. (P) 



140 PUBLIC REVENUES 

(b) other objections ; < 

(i) separation would not reform the gen- 
eral property tax, 

(2) state monopoly of corporation taxes 

would embarrass the locality in its 
work of securing sufficient revenue. 

(3) circumstances should determine how 

far, and how state and local revenue 
sources should be separated. 



SECTION 37. 



Review. 



Definition of Economics, Section i. 

Scope of Economics, Section 3. 

Goal of Economic Progress, Section 4. 



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